Everyday Policy Studies No. en11

Free Higher Education and Placing Regional Private University under Public Management

 According to the reference materials: “Future Vision for Higher Education”, officially announced by Ministry of Education in 2018 and “Announcement of Report on School Basic Survey(final value) in the 30th Year of the Heisei Period”, the 18-year-old population will shrink from 2.05 million in peak 1992 to 1.18 million in 2018, and to 1.03 million in 2030. In contrast, university entrance rate increased from 24.8% in 1989 to 53.3% in 2018, and percentage of students proceeding to higher education (including university, college, and technical college) reached 81.5% in 2018, both of which were the highest records.
 The number of universities increased from 499 in 1989 to 782 in 2018. There is no doubt that university admission quota increase has affected the rising of university entrance rate. But the development of higher education confronts the hard reality that the 18-year-old population will further decrease in the future.
 The burden of higher educational expenses in Japan depends on household budget, unlike Nordic countries. According to the reference materials: “Percentage of Students Proceeding to Higher Education by Income Class”, submitted to the Financial System Subcommittee by Ministry of Finance, income inequality reflects inequality in university entrance ratio or in percentage of students proceeding to higher education.
 The government announced free higher education and educational burden reduction policy as part of social security reform for all generations in the report: “New Economic Policy Package”, and planned to enforce such policies in April 2020, using the consumption tax hike to 10% as a financial source.
 According to the Free Higher Education Law enacted on May 10, 2019, the government must reduce tuition and enrollment, and pay benefit scholarships that do not require repayment. Students from resident-tax exempt households and low income (i.e. annual income of less than 3.8 million yen) households are eligible for the scholarships.
From the viewpoint of equal educational opportunity, these measures can be evaluated, but there are concerns that concentration of students in metropolitan areas and acceleration of excess students outflow from local areas will happen. (The Daiwa-Soken Report: “Where Are the Students Flowing out by Free Higher Education” on April 5, 2019.)

(Author: Masatoshi Katagiri)

This essay is the English version of No. 13, May 15, 2019 on the Japanese website.

Everyday Policy Studies No.en10

President Trump’s Promises and Truth from the Perspective of Tax Policy (Continued)

 During the 2016 presidential election, President Trump advocated large-scale tax cuts which was Republican traditional policy, aiming to encourage economic growth and increase employment. He promised to reduce corporate tax rate from 35% to 15%, and simplify personal income rates into three tax rates, and review the estate tax etc.
Trump Administration and Republican Party passed the Tax Cuts and Jobs Act at the end of December 2017 and implemented it from January 1, 2018.
 It was large tax cuts of about $1.5 trillion in 10 years since 1986 Reagan’s Tax Cuts.
 The point of the tax law is as follows.
(1) corporate tax rate reduction from 35% to 20%
(2) elimination of taxation when returning overseas income, and one-time taxation of overseas assets
(3) reduction of maximum income tax
(4) reduction of estate tax
(5) repeal of the penalty on health insurance non-members
 What is the economic effect of the tax cut?
 Trump Administration took a bullish view that real GDP growth rate was 3.1% in 2018 and would continue to exceed 3% by 2020. But nonpartisan Congressional Budget Office predicts that real economic growth rate will drop to 2% in 2019-23, and to 1.7% in 2024-29. (The Budget and Economic Outlook:2019-2029)
 Trump Administration asserted that tax cuts and deregulation would encourage economic growth and tax revenue increase, then improve budget balance, and pay off debt in 8 years of his term. But corporate tax revenue fell 22% and 2018 budget deficit was$77.9 billion, an increase of 17% over the previous fiscal year. The Congressional Budget Office predicts that the budget deficit will be $896 billion in FY 2018, over $1 trillion in FY 2022, 1 trillion 310 billion in FY 2029. CBO also predicts that government debt will increase from $15.8 trillion in 2018 to $24.6 trillion in FY 2026.
 In addition, Trump Administration asserted that the Tax Cuts and Jobs Act was for the middle class and smaller businesses. But according to the Tax Policy Center Report : “Most of Tax Reduction Benefits Go to the Wealthy”, even if the Tax Cuts and Jobs Act was fully implemented, 99.2% of tax reduction benefits go to top 5% household (wealthy) and the third quintile (middle class) decreases tax benefits by 2.1%.
 Trump Administration’s reduction policy will have poor or undesired results in the long-term even if it has some short-term effects. That is the truth.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 30, June 26, 2019 on the Japanese website.

Everyday Policy Studies No.en9

President Trump’s Promises and Truth from the Perspective of Tax Policy

 It’s rare that people stick with campaign promises as much as Donald Trump. He thought that fulfilling his promises to make America first was the best way to gain the confidence of voters and acted that way. How well are his main campaign promises for 2016 Presidential Election?
 Regarding trade policy, he had promised to withdraw from NAFTA. After taking office, he renegotiated with Mexico and Canada, and reached a new agreement with these countries in favor of the United States. The agreement is moving towards ratification. And he withdrew U.S. from TPP aiming for zero tariff in order to use tariffs to negotiate bilateral trade in favor of the United States. He also promised to reduce the trade deficit with China by increasing tariffs. U.S. imposed the first to fourth punitive duties on China which triggered counterattack punitive duties by China. As a result, it is developing into the U.S.-China trade war.
 Regarding environmental policy, he promised and decided to withdraw from the Paris Agreement which is the international framework for global warming countermeasures.
 Regarding energy policy, he promised the deregulation of resource development and indeed signed the presidential decree Promoting Energy Independent and Economic Growth.
 Regarding undocumented immigrant’s policy, he promised to build a wall along the border with Mexico. But he could not secure the budget for that because of the opposition of House Democrats. He was forced to declare a state of emergency and get money for the wall building out of defense budget.
 Regarding health care policy, he promised to completely abolish 2010 Patient and Affordable Care Act (Obamacare). But he could only abolish the penalty on health insurance non-members.
 While he may look good in trying to keep his promises as mentioned above, he is criticized from home and abroad with undesirable consequences because his promises themselves go against the times, and his trying to promote them ignoes international rules and democracy.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 24, June 12, 2019 on the Japanese website.

Everyday Policy Studies No.en8

How to Resolve the Externalities of Policy

 Public policies implemented in a country or local government may have a negative effect on some people and populations, or may have a positive or negative effect on other public policies, or have a positive or negative effect on other countries or local governments. It can have a positive or negative effect on future generations that have not yet been born. These effects are termed “externalities of policy.”
 If there is a negative impact on some people or residents, it will be an applied problem of what was described in “one vote per person and one yen per vote” (essay no. 7). In addition, the reason why one public policy can have a positive or negative effect on another public policy is that there is a complementarity or competition between the policies, or there are commonalities or some relationship between the factors that cause the two policy issues. Examples of public policies that can have a positive or negative effect on other countries or local governments or future generations include policies such as global warming countermeasures and energy policies.

 Carbon dioxide (CO2) emissions from burning fossil fuels cause global warming and result in economic losses.

 Given the views of the Intergovernmental Panel on Climate Change (IPCC), global warming measures to reduce CO2 emissions in one country (local government) have a positive effect on other countries (local government) and future generations. This positive effect also includes the mutual impact of national and local governments. On the other hand, energy policies that result in increasing CO2 emissions have a negative effect.
 Regarding the externalities of policies between local governments (horizontal externalities) and the externalities of policies between the government and local governments in the country (vertical externalities), negotiations between the parties will be needed. The problem may be solved by the politics of the government, or by the courts of justice. On the other hand, regarding the externalities of policy between nations, that is, international ones, since there is no World Government, the problem may be solved through bilateral and multilateral negotiations (diplomatic negotiations). Alternatively, the problem may be solved by the International Court of Justice and other international courts as well as by the power of economic sanctions and military action.
 However, the problems related to the negative externalities of policy that impact on future generations cannot be negotiated between the current and future generations, and it is therefore necessary to consider how the current generation will solve them.

(Author: Akira Yokoyama)

This essay is the English version of No. 45, August 6, 2019 on the Japanese website.

Everyday Policy Studies No. en7

A Green Person and a Blue Person

 In a graduate school called the “Graduate School of Policy Studies” which was first established in Japan more than 20 years ago, I once gave my students a report assignment titled “A Green Person and a Blue Person.” After that, I gave the same assignment to my students in undergraduate lectures in my faculty and in graduate lectures at a Graduate School of Policy Sciences in Kansai that had no faculty, and conveyed the true charm of comprehensive policy studies to the students. The report assignment was as follows.

 ”In a certain society, a green person proposes that the members go to the right whereas a blue person suggests that they should go to the left, and then the society took the right path according to what the green person said. Next, enumerate the situations in which such a phenomenon might occur and consider the policy implications.”

 The contents of the reports of the students at that time, including graduate students, were extremely diverse, with various considerations added, and were very suggestive. I would like young readers, including middle and high school students, to think about the assignment by themselves first.
 The reason why this phenomenon occurs can be considered as follows: (1) Most of the members of the society were green people. (2) The green person was a legally authorized representative. (3) The green person was the supreme leader of the dominant religion. (4) The green person was considered beautiful from the aesthetic viewpoint of society. (5) The green person provided scientific evidence for the proposal. (6) In the light of past behavior, social confidence in the green person was higher than in the blue person. (7) The right path proposed by the green person gained more votes (the result of one vote per person). (8) The right path proposed by the green person had a greater net benefit to the society as a whole (the result of one yen and one vote). (9) The right path seemed to be easier to walk along than the left. (10) The green person’s speech was better than the blue person’s. And so on (including the overlapping of the above factors).
 Even if the blue person’s discourse was correct from a one-off scientific basis, when the blue person was thought of as a “wolf boy” based on past behavior, the scientific evidence alone would not be enough to cause the society to change. Furthermore, even if the blue person could say what is really correct, it is also true that the collective decision often depends on the feelings of those who just don’t want to accept anything the blue person says.
 From these above points, it seems necessary to consider the concept that “policy is a human matter.”

(Author: Akira Yokoyama)

This essay is the English version of No. 32, July 2, 2019 on the Japanese website.

Everyday Policy Studies No. en6

Various Judgment Criteria

 The last essay (No. en3) described the policy evaluation of “one person one vote” and “one yen one vote”. At that time, I considered policy evaluation on an individual basis. Behind an individual’s policy evaluation is his or her own value judgment, but the judgment criteria are also diverse.
 Now suppose that you are a recruiter and face the following situation where you are going to hire one of two candidates, A and B. The scores on the common test for English, mathematics and Japanese (out of 100) are, in vector notation, A (100, 10, 40) and B (40, 50, 60). With this data alone, think about which candidate should be chosen.
 A simple average score is 50 for both A and B, with the following differences: B has a smaller variance of scores than A and more stable scores. Comparing the highest scores, A has the highest ability level because B scored 60 in Japanese against A, who achieved 100 in English. Comparing the lowest scores, B has a higher level than A in the worst case scenario because A obtained 10 in math against B, whose lowest score was 40 in English. Comparing the median scores, B has a higher level than A because B managed 50 in math against A, who scored 40 in Japanese. There are differences in the candidates to be adopted depending on the comparison criteria, that is, the judgment criteria such as comparing average scores, comparing variances, comparing the highest scores, comparing the lowest scores, comparing the median scores, and comparing them in combination.
 In addition, depending on what the recruiter expects from the candidate, for example, if you want a person with high English skills, you will ignore the ability of mathematics and Japanese, compare only the English scores, and hire A instead of B. To compare the superiority of the raw scores of A and B from among all participants in the common test, data such as the deviation value rather than the raw scores is needed. Needless to say, information other than common tests through resumes and interviews (as well as non-cognitive skills such as social activities, exercise capacity, communication skills, coordination, diligence, and perseverance, etc.) will also be considered when selecting candidates.
 When there are multiple recruiters, each recruiter will choose between candidates A and B based on their own criteria, and how the set of recruiters’ choices leads to the final decision of the candidate depends on the final decision rules.

(Author: Akira Yokoyama)

This essay is the English version of No. 20, June 4, 2019 on the Japanese website.

Everyday Policy Studies No. en5

It’s the GSOMIA, stupid!

 In August 2019, the Moon administration of South Korea announced that it would terminate the General Security of Military Information Agreement (GSOMIA) with Japan. Moon withdrew this decision six hours before the agreement would expire on November 23. There were serious criticisms from within Korea and the American pressure was most crucial for Moon’s withdrawal. What is the meaning of Moon’s bizarre diplomatic mistake?
 GSOMIA benefits the security of Korea while it costs Korea nothing. Moon’s decision was in response to Japan’s tightened control, for security reasons, of South Korea-bound exports of key industrial materials such as hydrogen fluoride (HF). Moon interpreted Japan’s decision as a retaliatory move over South Korean court rulings in 2018 that ordered Japanese companies to pay compensation for Korean laborers during WWII. The Moon administration was violating the international treaty of 1965 between South Korea and Japan. Furthermore, it does not make sense to bargain the trade issue with a security issue that hurts Koreans. What is going on in Korea?
 The right step to solve the entanglement is for South Korea to comply with the 1965 treaty. In 1965 Japan and South Korea signed the Agreement of the Settlement of Problems Concerning Property and Claims and Economic Cooperation between Japan and the Republic of Korea. By the dramatic, destructive action of scrapping GSOMIA, Moon intended to instigate anti-Japan sentiment among Koreans for his political gain. Many Koreans can become natural victims of blind nationalism against Japan, at least for a short while.
 Moon was in a political crisis that involved Moon’s man, Cho Kuk, the Minister of Justice. GSOMIA was used to distract the people’s attention away to something outside. On top of that there is a fundamental issue. The Moon Administration supports anti-Japanese and anti-American policies. Kim Il-sung, the founder of North Korea, believed that, by establishing anti-Japanese and anti-American public opinion in South Korea, that country could be made vulnerable and an easy prey of North Korea, a Stalinist communist country. It seems that the Moon Administration is a dangerous government to its own people and in international relations.
 I hope that our neighbor, Japan, will understand that the Moon Administration is not in accord with the Republic of Korea founded in 1948. Korea is in a difficult situation now. Fortunately, many Koreans are working hard to restore liberal democracy by replacing the Moon administration by a normal government. There are signs of hope too. First: GSOMIA continues. Second: the Korean people are awakening as we saw in the huge gathering of 400,000 in the Kwang-wha-moon (or Rhee Syngman) square on October 3. The meeting continues every Saturday since then. People call this movement the “Citizens Revolution,” which asks Moon to step down. Third: a book like “Anti-Japan Tribalism” by Lee Young-Hoon is a best-seller in Korea now. The book criticizes the bigotry of anti-Japan sentiment in Korea. His article appeared in a current issue of 文芸春秋. I also feel optimistic from reading Fukata Yuko’s article(No.75, No.82) in this forum on friendship between ordinary peoples of Japan and Korea.
 But we should be wary that the destructive act of the Moon Administration continues. Recently, in the diplomatic white paper published by the Korean ministry of foreign affairs, the usual phrase “Japan is a valuable neighbor with whom we share values and understanding,” has been deleted.

(Author:Yong Yoon)

This essay is a reprint of No. 111, December 31, 2019 on the Japanese website.  

Everyday Policy Studies No. en4

“It’s the economy, stupid!”

 The above is the phrase Bill Clinton used in the presidential campaign against W.H. Bush in 1992. Clinton’s campaign advantageously used the economic recession prevailing then in the United States. He succeeded in winning the election. Since then, “it’s something, stupid!” has become part of American political culture. “It’s the deficit, stupid,” for instance.
 This episode indicates the reality of a clear connection between politics and the economy, which is the topic of this column. Since public policy is produced through political processes, for a better understanding of public policy, it is crucial to understand the relationship between the economy and politics. The PPE programs in England and America emphasize such an approach. PPE represents philosophy, politics and economics. I wish to follow such an approach in my columns.
 History of political economy shows that economic activities influence political actions. F.D. Roosevelt‘s “New Deal” in the 1930s was in response to the Great Depression. In the twenty first century, the governments in advanced economies will exert greater efforts to protect the environment and to provide even more government health care benefits to its citizens.
 On the other hand, one cannot study economic policy without taking into account political influences, and one cannot completely understand politics without comprehending economic influences. Government policies on unemployment compensation, the minimum wage, health care, and the level of national debt are all the result of political decisions that affect the economy. Ask yourself why Japan has a higher national debt than the U.S. or the Republic of Korea.
 Then, how are political decisions made? Public choice or benevolent despot? In democracies, government decisions are made by some collective decision-making procedure; usually by elected representatives. The purpose of public choice and public finance is to understand how voters’ choices are translated into economic effects. One example in public choice is the median voter theorem in majority rules. However, our understanding of one-party political systems, such as in China, is poor.
 Society consists of conflicting interests. And the result of public choice better be optimal or efficient in the Pareto sense. (See No.1 in this forum for Pareto efficiency.) One impediment to efficient decision-making is that policy makers may have no good way of measuring the citizens’ demand for the public good or government service. They may not have enough information to do so. The government sector uses a huge portion of the nation’s resources. Even in a market-oriented country like the United States, the government sector is one third of GDP. Considering the importance of the size, voters’ understanding of the political issue is crucial for an efficient outcome.
 Politics involves complex exchanges that compound already complicated market exchanges. While study of the market is concerned with efficiency, the goals of public policy in a democratic society include equity as well as efficiency. Most people put a high value on fairness. As a result, a policy may move away from an optimum. Public policy has to answer questions like: what is each person’s fair share of the tax burden? However, what is fair is a value judgment. In this effort, people first should agree on the underlying facts. Then there is some hope. Although there may be conflicting interests, there are many shared values on which the populace can find common ground.

(Author:Yong Yoon)

This essay is a reprint of No. 95, November 21, 2019 on the Japanese website.

Everyday Policy Studies No. en3

One Person One Vote and One Yen One Vote

 Last time I asked the following question. If one person repaints the wall of her or his house a shade of red that she or he likes more than the original white, can the society in which this wall becomes red be said to be a “better society” if it gives other people an unpleasant feeling or causes them a loss?
 Let’s assume a society consisting of 5 persons: 1 building owner and her or his 4 neighbors. In this society, the payoff (benefit) of making the building’s wall red are as follows: +2 million yen for the building owner, −1 million yen for neighbor 1, −0.3 million yen for neighbor 2, −0.2 million yen for neighbor 3, and −0.1 million yen for neighbor 4. The neighbors who suffer losses have thus received a negative payoff. Based on the payoff alone, when people judge the policy of making this wall red, there is one building owner in favor and four neighbors against. Therefore, in the case of majority rule of “one person one vote”, this policy would be rejected.
 However, according to the concept of “one yen one vote”, this policy would be passed because there are +2 million yen in favor and -1.6 million yen in opposition. The net benefit that this policy brings to society as the whole is 0.4 (= 2−1.6) million yen, so this policy is desirable from the point of view of the whole society. This policy evaluation based on “one yen one vote” is therefore a value judgment based on the compensation principle or utilitarianism.
 If the total gains of the people who are in favor exceed the total losses of the people who are against, the compensation principle judges that a better society will be realized by the implementation of the policy. If the total gains still exceed the amount of compensation, even after compensation is given to the people who incur losses, a Pareto improvement is possible in the sense that some people will be better off without making any member of society worse off. In this way, the compensation principle leads to utilitarianism in that it is desirable to maximize the social net benefit.
 However, the policy evaluation based on “one yen one vote” leads to a solution of the problem by using money, even if each person honestly expresses her or his payoff, but it does not consider the fairness of income distribution. On the other hand, a policy evaluation which is based on “one person one vote” generates the problem of “political externality” in which minorities must follow the majority’s decisions. Which policy evaluation would you choose?

(Author: Akira Yokoyama)

This essay is the English version of No. 7, May 7, 2019 on the Japanese website.

Everyday Policy Studies No. en2

Pareto Improvement and Externality

 As I wrote in the section “Greetings from the President”, the field of “Policy Studies” comprehensively investigates human activities that can change the existing society and thereby create a “better society”. If people are different, a “better society” is also different for each person. However, I believe that few people would argue against the following idea.
 Imagine that one person wears a “red” shirt, and that it is better for her or him to wear a “red” shirt rather than “white”. If other people do not care about the color of the shirt worn by that person, the society in which the person wears the “red” shirt is better than the society in which the person wears the “white” shirt. This idea is based on considering the value judgment known as a “Pareto improvement”, named after an Italian economist called Pareto (1848-1923), to be a good judgment. Here, a Pareto improvement is defined as a social change in which at least one individual is made better off but no individual is made worse off. This improvement is then considered good for the whole society. We think that society after an improvement is a “better society” compared with the society before the improvement.
 In other words, this way of thinking is that if nobody is bothered, it is a good thing for the whole society to realize a social state in which everyone pursues their own happiness and thinks it is good for her or him. This idea also leads to liberalism.
 However, if the person wants to replace the white-walled building she or he purchased with a red color that she or he prefers to white, what will happen? If there is such a person (e.g. a neighbor) who is bothered and suffers as a result of the building wall becoming red instead of white, this change will not be a Pareto improvement. In this way, when one chooses a form of behavior that affects the interests of other third parties, it is said that “externality” exists. The externality is positive if the effect is positive, but negative if the effect is negative. Then, compared to the society where the white building remains, can we say that the society where the building wall is changed to red is actually a “better society”? Let’s consider next time how we can evaluate this change from the viewpoint of the whole society.

(Author: Akira Yokoyama)

This essay is the English version of No. 1, April 9, 2019 on the Japanese website.