My affection for the O-Ring Theory of Development, hatched by renowned development economist and Harvard professor Michael Kremmer in 1993, has been burgeoning over the years as I have come to appreciate the wisdom in it more. The theory explains why some countries are trapped in a vicious cycle of sluggish productivity and underdevelopment while others enjoy unprecedented high productivity and development.
This model makes a number of key observations. Firstly, it states that: “Countries that have a highly skilled workforce will attract industries that produce highly sophisticated products. Similarly, countries with an ill-qualified workforce will attract very basic industries.”
This means, for a country with low-skilled workers like Malawi, it would be hard for an industry that uses modern and complex technologies to invest in the country because they lack the skills force needed to operate the technology. Thus, Malawi is stuck with low-technology industries which require basic skills.
The second key observation made by the model says: “Individuals will be encouraged to upgrade their skills or invest in particular skills if incentives are right.”
This means if job opportunities exist in tunnel engineering, software development and nuclear engineering, people will upgrade their skills to be at par with the opportunities that exist. If opportunities exist in carpentry, book-keeping or brick layering, people will accordingly invest in such skills to match what is there. No rational individual will invest his/her time pursuing a career in astrophysics when job opportunities in that area do not exist in their country. This explains why most public and private institutions offer courses that mainly reflect job opportunities that exist in our land.
In addition, the theory also says: “If people around you are highly qualified in skills, you will be motivated to upgrade your skills as well. This acts as an incentive to pursue further education. A vicious cycle is created—knowledge creates more knowledge. But if those that surround you have low skills, people have no motivation to upgrade their skills and knowledge decreases.”
The beauty of the O-Ring Model is that it can be used to explain some of the issues preventing Malawi from developing. The importance of having a particular set of skills as a nation cannot be overlooked as it is heavily linked to the development of any nation. Actually, there is no nation on earth which has developed without investing in skills.
It is without question that the country relies heavily on agriculture for its foreign exchange earnings. But the results are not what they would have been if the sector had skills to be highly productive. It breaks my heart to note that some commodities made from agricultural products are still imported because people lack the appropriate skills on value addition. As a country, we would have an advantage if we invested in value addition skills.
In my view, it is useless to try and woo investors into the country without at first tackling the issue of which industries the investors should invest in and then ensuring that skills for such industries are available. Foreign investors are not idiots who make decisions without proper research. They are in business and they need to get some profits at the end of the day when they invest and as such, they would not invest in a country which is not profitable.
As a country, we can learn a lot from the strategy that was used by Singapore. This Asian island nation invested in skills that targeted specific foreign investors and after that, wooed the investors to their country. The rest, as they say, is history.
The onus is on our politicians. Rather than just harping useless political rhetoric, they need to sit down and look at the best way of moving this country forward. Investment in skills will not only attract foreign direct investment (FDI), but it will benefit the local environment as well. The secret lies in investing in appropriate skills.
The reason most school leavers pursue careers in accounting, book-keeping and others is not because they do not want to pursue other careers, but they are assured of getting a job after completion. Given a choice, they would study something else.
Similarly, most local colleges offer courses in business management and accounting because those are the careers in demand. As such, an investor will not come to Malawi with their skills unless they need such services.