Malaysia in the Era of Globalization #54

Chapter 7: Enhancing Human Capital


Enhancing Human Capital Through Better Health

Good health is good for the economy. A National Bureau of Economic Research (NBER) paper showed that a one-year improvement in a country’s life expectancy (an index of health) contributes to a four percent increase in its economic output, and that good health has a greater impact on the economy than work experience or years of schooling.

The World Health Organization’s (WHO) Commission on Macroeconomics and Health (CMH) Report reaffirms the powerful link between health, poverty reduction, and economic growth. The report challenges the traditional argument that health of the citizens will automatically improve as the result of economic growth. Indeed the opposite is true; improved health is a critical requirement for economic development in poor countries.

Spending relatively small sums of money on basic public health measures and peri-natal and maternal care yields considerable returns in terms of increased economic output through improved health and productivity of the citizens. This alone justifies such expenditures quite apart from the humanitarian arguments.

The diseases that have such a crippling impact on human productivity and thus economic growth are the common infectious diseases that have been successfully eradicated in modern societies. The exception is HIV/AIDS. The others (gastroenteritis, tuberculosis, malaria, dengue, and measles) can be easily prevented through simple and cheap public health interventions. Cuba is an outstanding example of what can be achieved with meager resources. Cuba has much better health indices than many wealthy countries because it rightly emphasizes community health. Even diseases like HIV/AIDS that are terribly expensive to treat are amenable to cost-effective preventive public health measures. San Francisco leads the world in introducing innovative and non-intrusive measures that have significantly reduced the number of new HIV/AIDS cases through such measures as effective sex education, wider availability of condoms, and clean needle exchange programs.

The WHO Report is based on studies of some of the poorest countries. Its findings cannot however, be extrapolated to advanced nations. In America the concern is the opposite, that is, escalating health care cost is crippling the economy. America now spends close to 14% (and rising rapidly) of its GDP on medical care, with no corresponding improvement in the health indices of Americans.

The current all-consuming effort in America is to rein in the costs of medical care. Beyond a certain point there is little advantage of pouring more money into health care. I fail to see the benefits to society of expanding resources to enable an 80-year-old for example, to get a heart transplant or expensive chemotherapy.

A word of caution: we need to discern between cause and effect. Certainly if one were economically well off and could afford good nutrition, adequate housing, and modern medical care, those would contribute greatly to good health and increased longevity. Good health may thus be the consequence rather than the cause of economic growth. Nonetheless one can also intuitively agree that a population that is sick and malnourished will not be very productive.

Contrary to widespread belief, the truly effective medical interventions are cheap, safe, and relatively simple. The lowly eyeglasses greatly extend the productive and quality of life of everyone. Work-rule modifications such as using safety harnesses and protective gears save many workers’ lives and limbs. At American construction sites, everyone wears hard hats, including visitors. Roadside workers wear reflective yellow attires for easy visibility. Stringent adherence to work-rule safety, reinforced by hefty fines for those not complying, has made the American workplace remarkably safe and healthy.

The impact of health on productivity is not generally appreciated because it is hidden. When someone is incapacitated or unhealthy, one simply considers that to be part of the normal rhythm of life. He is sick or injured and cannot work, and that’s it; we never consider the lost opportunity of that individual’s talent being sidelined. To concretize my argument, consider this. If Mahathir had not had his life-saving heart surgery in 1989, imagine the loss of his considerable subsequent contributions. Similarly, had the late Tun Razak’s leukemia been detected earlier and effectively treated, no telling the wonders he would have performed for the nation.

When the great singer and composer P. Ramlee died at the peak of his career (also of heart attack), few wondered of the songs not written, music not composed, and movies not shot. But we all fondly remember his great songs. The gifted entertainer Sudirman, taken away in the prime of his youth, was similarly an incomparable loss. Imagine the flowering of his enormous talent had he lived longer.

Muslims in particular, because of our religious fatalism, do not dwell much on such matters. We consider death the will of Allah. Yes, Allah may decide when our time will be up but that does not mean we should not take care of our health, vaccinate our children, and drive carefully. As our prophet (pbuh) so wisely observed, yes, trust in Allah but first tie up you camel securely; only then would you pray to Allah that it does not escape.

Investments in preventive and pubic health give the highest returns relative to the cost. Adequate maternal and perinatal cares greatly reduce both infant and maternal mortalities, and can be delivered cheaply with minimal advanced technology or expertise. Vaccinating all children, for example, would pay dividends far in excess of the costs. The cumulative cost of treating one polio patient would pay for the vaccination of millions.

There are other simple public health measures that would also greatly improve citizens’ health. The provision of potable water and adequate sewer system would greatly reduce many enteric diseases. UN agencies had designed simple and cheap outhouses suitable for rural areas. By mass-producing them, the government would greatly reduce its unit costs and pass on the savings to citizens. Diseases like cholera still plague Malaysia, a reflection of its appalling standard of public health. Cholera is non-existent in the West simply because of clean community water and effective sewer treatment.

Another major killer in Malaysia is trauma, in particular road accidents. Trauma involves mostly young adults, previously healthy and productive citizens at the peak of their careers. Most accident victims have many more years of productive life ahead of them. The sad aspect of highway accidents is that they are preventable. Yet Malaysia simply ignores the problems and instead put all the blame on the drivers. True, Malaysian drivers are reckless, tailgating at high speed and suddenly changing lanes without signals. In part this is attributable to the fact that freeways are new to Malaysia and drivers are not familiar with the road dynamics and dangers imposed by cars traveling at high speed. In the West automobile accident injuries have been greatly reduced through better-designed cars (airbags and seatbelts), well-engineered roads, high visibility signage, and improved driver training. Driver education is mandatory in American high schools. Many states are also experimenting with graded licenses for teenagers instead of giving them the full license at once.

The impact of well-engineered roads on fatalities was dramatically demonstrated in my California practice. Twenty years ago I saw many mangled traffic accident victims in the emergency room. I have done more than my share of fixing busted livers and broken limbs. Those were the lucky ones, the ones who managed to arrive at the hospital alive. Many more were dead at the scene of the accident. The reason was that the highway into the town was not divided and people were driving as if it were a freeway. Repeated public campaigns to caution motorists, including increased police enforcement, did not make a dent. Ten years ago the road was upgraded into a divided freeway complete with a median barrier, and suddenly the number of accidents and fatalities plummeted. The savings of lives and medical expenses more than recouped the cost of the highway improvement.

The carnage on Malaysian roads is truly horrifying. The accident rates, adjusted for the number of registered vehicles, are nearly three times that of Western nations. Malaysian roads are poorly engineered, lack a median, poorly maintained, and over strained. I have often wondered that should a rigorous economic analysis be made, it would be far more effective, in terms of number of lives saved and maimed bodies prevented, to improve the roads than to build hospitals and medical schools.

There are other cheap public health measures that would save millions by reducing the expenditures on medical care. Case in point: smoking, a significant health risk worldwide. Lung diseases like cancer and emphysema, together with premature heart diseases, hardening of the arteries, and strokes are directly attributable to smoking. Discouraging and curtailing smoking would reduce immensely the related medical costs. California successfully reduced smoking through a combination of tough public health measures like banning smoking in public places and strict prohibition against selling the product to minors. California also imposed “sin” taxes making cigarettes expensive and thereby decreasing consumption. There are also aggressive public health campaigns against smoking targeting the young. Today California has the lowest per capita cigarette consumption.

I would go further and nationalize the distribution and marketing of tobacco. Once the industry has the efficiency of the postal service, where one has to wait in line to buy cigarettes, the consumption would surely go even lower. Canada, in an effort to reduce alcohol consumption, has laws where the product can only be distributed and sold by a government agency. In this way it also gets to keep the revenue!

We must distinguish between real medical advances (which are effective as well as cheap) and what the American pathologist Lewis Thomas called “halfway technology” advances which are dramatic and expensive but of limited utility. A ready example would be the advances in the treatment of polio. In the 1950’s we had a number of those halfway technologies used in treating polio patients. Vast engineering skills were consumed in designing better iron lungs for paralyzed patients. Creative orthopedic surgeons were performing a variety of ingenious operations to strengthen muscles and stabilize joints of these unfortunate victims. These were very expensive; they were also all halfway technologies.

Then came real advance with the development of the polio vaccine. It is very cheap and effective. Today polio is essentially wiped out. Meanwhile all those elaborate iron lungs and textbooks on the delicate surgeries –quaint reminders of halfway technology – are now seen only in medical museums.

I am not suggesting that all expenditures on health care bear such dramatic returns. Beyond the basic public health and preventive measures discussed above, the benefits of ever increasing expenditures on medical care produce rapidly diminishing returns. In America, nearly percent of the Medicare (a federal medical program for those over 65) dollars are spent on patients who would die within six months.

One of the diseases that have the greatest impact on the productivity and longevity of citizens is malaria. Someone once made the remarkable observation that Rachel Carson (the author of Silent Spring, a book that raised so much public consciousness on the dangers of chemicals) was responsible for more deaths than Hitler. It was her crusade that led to the banning of one of the most effective pesticides against mosquitoes, DDT, and with that came a resurgence of malaria and its terrible toll. At the public health level, DDT was indeed a major advancement: cheap and effective. But on a broader ecological consideration, it represented a halfway technology. Real advance would be an effective vaccine against malaria or an effective biotechnology weapon specifically targeting the offending mosquito specie.

While waiting for that real technology, there is much that can be done to reduce the incidence of vector-borne diseases like malaria and dengue. In my childhood mosquito nets were essential. One would never sleep without being covered by one. Today I rarely see them in Malaysian homes. Malaysians have been lulled by the wonders of chemicals. Similarly, covering roadside ditches and drains, cutting grass and bushes, and clearing the garbage would all reduce the vector population.

A major breeding ground for mosquitoes is septic tanks. A health engineer in Sarawak ingeniously designed a mechanism to prevent this by having foam balls fill the venting duct. In this way the gas could escape but not the mosquitoes – a cheap yet effective innovation.

We do not need the empirical studies of the NBER or WHO to convince us that investing in the health and well being of our citizens is the right thing to do. That it also enhances economic growth is merely icing on the cake.


Next: Enhancing Human Capital Through Education

Malaysia in the Era of Globalization #53

Malaysia in the Era of Globalization #53

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

Malaysia in the Era of Globalization #52

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?”
“849 0338”
“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