Malaysia S Education Investment Is Not Paying Off What S Going Wrong

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From Yusof Saari
Investment in human capital is essential for sustained economic growth as it enhances workforce productivity, innovation, and competitiveness.
Quality human capital investment equips individuals with relevant skills and knowledge, enabling them to drive industrial transformation, technological advancements, and business efficiency.
This, in turn, contributes to wealth creation through higher income levels, job opportunities, and long-term economic resilience.
At the macro level, human capital investment is commonly measured by the percentage of education expenditure to gross domestic product (GDP).
This indicator reflects the commitment of public, private and international entities to investing in human capital development, and is monitored as part of the sustainable development goals (SDGs).
Data from the Unesco Institute for Statistics shows that from 2011 to 2022, Malaysia allocated an average of 4.6% of its GDP to education, notably higher than Singapore and Japan, which allocated 2.8% and 3.3% respectively during the same period.
On the other hand, the productivity levels per employee in 2022 were almost three times higher in Japan and almost five times higher in Singapore compared with Malaysia.
That year, the productivity level in Malaysia was equivalent to US$22,947. In Japan it was US$67,677 and in Singapore it was a whopping US$114,597.
Despite a marginal decline in 2023 to US$113,179, Singapore’s productivity rate was still 4.8 times that of Malaysia’s US$23,298.
So, how can this higher education expenditure translate into improved productivity in Malaysia?
A closer analysis of labour productivity trends in relation to education spending reveals an alarming situation that cannot be ignored.
This is evident in the graphs below, which depict scatter plots illustrating the relationship between education expenditure and productivity growth in Malaysia, Singapore, and Japan from 2001 to 2022.
In the case of Malaysia, the trend line suggests a negative correlation between education expenditure and productivity growth.
Higher education expenditure does not appear to translate into productivity gains; in fact, there are instances of productivity decline despite increased spending.
In contrast, a clear positive correlation is observed for Singapore and Japan, suggesting that increased education spending tends to be associated with productivity growth.
The spread of data points suggests that the relationship is not perfectly linear but generally indicates that investment in education contributes to productivity improvements.
Singapore’s model seems to show that effective allocation of education funds leads to economic benefits.
When education fails to contribute positively to productivity growth, it raises serious concerns about the efficiency and effectiveness of a country’s investment in human capital.
Education is widely regarded as a key driver of economic progress, equipping individuals with the skills and knowledge necessary to enhance labour productivity and drive innovation.
However, when increased education expenditure does not translate into measurable productivity gains, it suggests underlying inefficiencies in the education system, labour market mismatches, or structural economic challenges that hinder the effective utilisation of human capital.
The negative correlation between education expenditure and productivity growth underscores the urgent need to reassess education policies.
Rather than focus solely on increasing funding, policymakers must prioritise the quality of education and its alignment with market demands.
A well-functioning education system should equip the workforce with relevant skills that drive innovation and economic efficiency.
Without targeted reforms, continued investment in education without measurable productivity gains risks becoming a financial burden rather than a driver of sustainable economic growth.
This is crucial to avoid a crisis of public distrust in the education system in the future. - FMT
Yusof Saari is the economic advisor at the ministry of human resources and emiratisation in the United Arab Emirates.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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