There has been a great deal of talk in ASEAN, about the middle-income trap. Singapore, if anything had proven that the middle-income trap can be broken. But Singapore did it with positioning itself as a “Trading Hub.”
- What exactly is Middle Income Trap? Wikipedia says:
As wages rise, manufacturers often find themselves unable to compete in export markets with lower-cost producers elsewhere. Yet, they still find themselves behind the advanced economies in higher-value products. This is the middle-income trap which saw, for example, South Africa and Brazil languish for decades in what the World Bank call the “middle income” range (about $1,000 to $12,000 gross national income per person measured in 2010 money).
Typically, countries trapped at middle-income level have: (1) low investment ratios; (2) slow manufacturing growth; (3) limited industrial diversification; and (4) poor labor market conditions.
The Middle Income Trap occurs when a country’s growth plateaus and eventually stagnates after reaching middle income levels. The problem usually arises when developing economies find themselves stuck in the middle, with rising wages and declining cost competitiveness, unable to compete with advanced economies in high-skill innovations, or with low income, low wage economies in the cheap production of manufactured goods.
- What for the rest of ASEAN, like Philippines, Indonesia and Thailand? What will help them break out of the middle-income trap category? Can ASEAN break out of the middle-income trap by becoming the a global “Trading Hub?”
While a global hub remains an attractive opportunity, one long recognized problems with developing countries is the lack of Research and Development (R&D). The success of well know global brands, such as Apple, is indicative to the importance of innovation.
R&D is a complex subject. But with most R&D, it starts with having a mixture of culture and tradition in creativity and innovation, supported by a healthy Venture Capital and Private Equity business. But also included in the mixture is often highly skill workforce.
- I ran into a new friend, and lets just call her, Ying, who encapsulates ASEAN’s “Middle Income Trap” threat and opportunities.
Ying won the coveted Thai King Bhumibol scholarship worth 10 million baht, to further her education. She picked one of the globe’s best school, MIT, to study bio-engineering computer science, which is the study of the human genetics using statistics by way of computer analysis.
“I had to study genetics, statistics and computer science, but I graduated at the top of my class,” says Ying.
Ying returned to Thailand and said it is in her heart to pay back her loyalty to the Thai King, by applying to teach at Thailand’s Royalist Chulalongkorn University. The problem is, her study is too advance for the university current curriculum, and thus she is out of a job, until the university can find her a slot to teach her advance knowledge.
In the mean time, she had contacted several companies in Thailand, local and multinational, to work as an analyst. All the firms replied that her knowledge was too advanced for their firms current operation. And thus, as her work namely utilizes computer, she is “Outsourcing” her expertise to global based firms part-time, working from Thailand.
I asked Ying, why not establish an “Outsourcing Firm” with Venture Capital as seed money? Her reply? “I am not a skilled business person,” says Ying.
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