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Free Education Policy and Its Evaluation

Ⅰ.   Introduction

   Free education policy is a hot issue in Japan both as an important economic strategy as well as a political agendum.

   What exactly is meant by “free education policy”?  Japanese education system as prescribed by Article 1 of the Basic Education Law comprises of 6 years of elementary school, 3 years of junior high school, 3 years of senior high school and normally 4 years of college or university. Since Japanese constitution stipulates education in elementary school and junior high school as compulsory, publicly established these schools are free of charge.

   Education of other levels such as nursery schools and kindergarten for the very young and senior high schools and college and still higher levels such as graduate schools for higher education charge fees for students.

   The policy proposal for “free education” therefore means in Japan to make education for the very young and students for higher education free of charge or reduce fees or tuitions by subsidies.

   Prime minister Shinzo Abe has expressed his keen interest to promote free education as an integral policy of the nation’s human resources development strategy. He advocated free education increasingly vocally in recent years. He picked this policy as a major public promise of Liberal Democratic Party in its campaign for the general election, namely, the election for the House of Commons, in October 2017.

   Interestingly, in this election, all the political parties who nominated their candidates upheld “free education” as an important public promise for voters.

   Since LDP won a land-slide victory in this election, they had a strong momentum to realize the free education policy after the election. It took more than a year to materialize the details of the policy with backing of the budget ready to implementation.

    The policy was formulated so hurriedly that the discussion at the Diet, by experts or even within LDP on examination of its needs, implications and empirical evidence for effects has been scarce and much less than needed. 
     In this essay, I would like to review the intent of Abe administration to implement free education policy and its background, and then review the process of policy formulation and finally evaluate the need, effects and issues of the policy which is going to be implemented from this year.

Ⅱ.   Strategic intent and background of free education policy

   The strategic intent of Abe administration for free education policy is that free education is a primary means to promote human resource development. Abe administration put up human resource development strategy as an integral pillar of economic strategy package of the third phase of “Abenomics.”
    Abenomics is a well known package of economic policies launched from the beginning of Abe administration since December 2012. The first stage of Abenomics comprised of three arrows, namely, monetary policy of extra-ordinary dimensional easy money, active and dynamic fiscal policy and growth strategy.

   The second stage of Abenomics started since the end of 2015, which consists of new three arrows, namely, growth strategy to attain 600 trillion yen GDP in 2020, policy to increase labor force participation of females of child rearing age, and policy to enrich old age nursing system to reduce burden of family care so that relatively aged people can participate to labor market. In short, the second stage Abenomics emphasizes strengthening supply side capability of the economy by means of encouraging labor supply and productivity increase by facilitating technological innovation.

   The third phase of Abenomics was initiated at the end of 2017 in the wake of October 2017 general election and formulated somewhat more explicitly at the outset of the third term Abenomiccs after the election of LDP president in September 2018. The third phase of Abenomics has not been expressed as systematically as the first and second stages. It has been prepared during the second stage and focussed more specifically on human resource development and technological innovation.

   To shape its focus, there have been two major background factors: one is the increasingly severe labor shortage and the other is the rapidly intensifying global competition of new technologies.
   Labor shortage in Japan, both in terms of quantity and quality, is stemming from two reasons. One is an increased demand for labor arising from demand for reconstruction of areas devastated by major earthquakes and  Tsunami in North-eastern part of Japan and for enriching infrastructure for Olympics and Paralympic games in 2020. The other is a more fundamental issue due to a long-run reduction of population which reduces particularly supplies of young labor force.

   Intensified global competition of new technologies, particularly of the so-called 4th industrial revolution and more specifically 5G technologies provides another critical background changes. Still another is the prevailing trend for a longer span of working life in the era of longevity of 100 years, which heightens the need for continuous upgrading of skills for a prolonged life career.

   These background factors aggravate the need for well-skilled young labor force. Having been increasingly aware of these factors, Abe administration began to emphasize the need to increase labor supply of the current labor force and to increase birth rates on the one hand, and upgrading skills of people, particularly of the young,  on the other.

   Free education, it seems, is believed to be by prime minister Shinzo Abe and his policy staff as one of the most important and effective means to meet theses demands, namely, increasing the labor supply, increasing the population and enhance skills of people.

Ⅲ.   The process of formulation of free education policy

   In this section, let me review the development of policy ideas and the process of policy formulation of free education.

   In March 2017, LDP committee to think about  economic and fiscal policies after 2020, headed by Mr.Shinjiro Koizumi, proposed an idea of children insurance to finance the cost of providing free education.

  In April 2017, LDP committee for fiscal consolidation rejected the idea of issuing government bond to finance free education.

  On June 2, 2017, the government disclosed the draft for the Basic Direction of Economic Fiscal Policy Management for FY 2018 which states that free education for children younger than age of elementary school needs to be implemented soon.

  On September 25, 2017, prime minister Shinzo Abe declared that he will invest 2 trillion yen to promote “Human Resource Development Revolution”, the new catch-policy of Abe administration.

   Prime minister Abe’s declaration obviously intends to appeal to voters for the forthcoming general election. Indeed, Mr. Abe explained the reason why he calls forth general election in October 2017 as he wants to change the use of the expected increased tax revenue accruing from increased consumption tax rate from the ongoing 8% to 10%.
    The increased tax revenue which is expected to be 5.6 trillion yen was supposed to be used mainly to repay the government fiscal debt. Mr. Abe appealed to the voters that he wants to spend much of the increased tax revenue to finance “free education” and to partially enrich social security. In order to ascertain the support of people for this changed use of the tax revenue, he told that he will ask the public endorsement by means of conducting general election.

   Toward the general election of the House of Commons, scheduled for Oct.22, 2017, all the parties which put up candidates put up “free education” policy.  Let me quote, LDP free education for the very young, financed by increased tax revenue accruing from increased consumption tax rate. “Kibou” (hope) Party for the very young and senior high students financed by taxing on internal reserves of corporations, Komei Party for the very young and senior high students by increased tax revenue accruing from increased consumption tax rate, Communist Party for the very young up to college students financed by new taxes on large firms and rich people, Constitutional Democrats, Ishin(new restoration), and Social Democrats also propose “free education” policies.

   On October 28. prime minister Abe asked the industrial community to pay 300 billion yen to supplement the budget for free education, which Mr.Abe said to cost some 2 trillion yen.
   Following prime minister Abe’s lead, several task forces of LDP discussed to determine policy details such as whether or not income ceiling be set, whether or not unapproved nursing schools can be made eligible for free education. The government also asked some scholars and knowledgeable people to set up experts task force to discuss policy details and propose recommendations.

   By June 2018, basic ideas for policy details have been more or less specified by the government both free education for the very young and also for senior high school and college students.

   Toward the end of 2018, these plans have been formulated specifically which are to be written in the annual budget for FY 2019. These plans are vouched by 2 legislations: namely, “Amendment of Children Bearing and Fostering Assistance Law,” and “College and Higher Education Study Assistance Law.” And the final plan with budgets was authorized and determined in the cabinet meeting in the morning of February 12, 2019.

   The government expects that the total annual cost of providing free education will be 1.5364 trillion yen, of which for young pupils 776.4 billion and for students of higher education 160.0 billion yen. Let me describe main points as follows:

  For kindergarten and nursery school pupils:
     Age 0 to 2, free education(for unapproved, free up to 42000yen a month. Given for households exempted from house tax. Starting October 2019

      Age 3 to 5, free education(for unapproved, free up to 3700 yen a month. Given for all households. Starting October 2019

    For senior high school students:
        Senior high schools study assistance(annually 120 to 300 thousands yen) for households with less than 9.1 million yen annual income,   
         Senior high schools grant scholarship(annually 30 to 140 thousands yen) for households with less than 2.5 million yen annual income.
     For colleges and universities:
         Grand scholarship( annually,  350 to 910 thousands yen) for households exepcted from residents’ tax. starting from April 2020.
         Tuition waiver( annually 170 to 700 thousands yen) for households with less than 2.7 million yen income
         Reduction of entrance payment( 70 to 280 thousands yen)

Ⅳ.   Critical evaluation of free education policy

   Having reviewed the process of policy formulation and the contents of the free education, let me make a few points of critical evaluation.

   The total annual cost of proposed free education for FY 2019 is 1.5364 trillion yen, which is a huge amount of money. Provide education free or with as low burden as possible itself is valuable and meaningful since education of the population is a very important policy objective to manage the country.

   The important question is whether the way such huge amount of money paid by the public is effective and meaningful for the purpose of the policy.

    Since in Japan, the ratio of people who attend schools is rather high even among the advanced nations, i.e. 56% of youth are attending 4 year or 2 year colleges, and 95% of children younger than the enrollment age of elementary school are attending nursery school and kindergarten.  Given this high rate of attending which is already attained, increasing the quantity or the number of attendants is not as an important objective as much as enhancing the quality of education.

    Given this high attendance ratio, providing free education or subsidies to reduce the cost of education as is proposed by Abe administration may well yield unintended mal-effect of increasing differentials particularly of the quality of education, acquired knowledge and skills, among the same cohort of students. This is because relatively wealthier families will spend the additional income provided by the government to further enrich the ability of the children while relatively poor families may well use the additional income to supplement their limited family income.

  Ms. Makiko Nakamuro of Keio University reports the results of their empirical research on human capital investment across different age classes which shows that the effect of investment is much higher younger age cohort. She infers from such research findings that the policy to enrich human and other endowments on education for young children of particularly the area where people are relatively poor will be more cost effective as education policy. She worries the debate in Japan which is often made on casual observations rather than reliable empirical research. Makiko Nakamuro, “Free education is a wrong policy to enlarge differentials” Bungei Shunjyu August 2017.

   The problem of “free education” policy of current Japan is that the objectives of the policy is not well defined and the huge amount of precious money paid by tax payers  is used on casual observations or subjective conviction without reliable evidence of  research. The policy was formulated hurriedly with hardly any solid and systematic discussion or debate. I wish that the “free education policy” was not intended simply to appeal to voters by scattering additional money to attract their votes.

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