Ichiro Suzuki*
The University of Tokyo has recently announced its plan to raise its tuition to undergraduate students by approximately ¥100,000 from the today’s ¥535,800 ($3,350). This tuition has been in place since 2005, and it makes every economic sense to raise it in the face of rising operating costs. The University also says that they have to make this move to stay competitive.
Not surprisingly, the plan for higher tuition has not been well received by students. They are protesting. A TV news show ran a story of a female student from a rural area in Western Japan, who are struggling financially, working three part time jobs to support herself. (Plight of such students was frequently reported during the COVID-19 crisis that led to losses of many such jobs.) It is only $3,300 but it still weighs heavily on many students though the majority of the students at the University comes from relatively well-off families. The University has announced that they would expand their scholarship program for greater financial support, but how do they fund scholarship programs?
The tuition hike plan has revealed the biggest problem that universities in Japan face. Their finances are weak, in the face of declining government support and the paucity of their foundation funds. While it is imperative for universities to offer education at reasonable prices, here comes the second agenda that often contradicts with affordability. It is quality of education and competitiveness of universities. These things don’t come cheaply. It takes well-devised programs and able professors to provide students with quality of education and produce research that draws attentions in the academic circle. Good professors have to be paid competitively. Offering competitive salaries is a tough part of running top notch universities in Japan, where ¥10 million ($62,500) is still considered as dream annual income, as envied as it was way back in 1980. Only a precious few professors outside Japan would take a pay cut to come to the University of Tokyo, even if it might offer a research environment that satisfies their needs. Those people who are advocating free education at the university level have scant concerns for competitiveness. Perhaps, only a handful of universities in Japan have a serious interest in competing on the global levels. They are worshippers of free education in Europe but universities in the eurozone hardly appear on the top spots on the global rankings. (The U.K. is outside of the eurozone.) On the other hand, leading U.S. public universities’ tuitions are many times as high as the University of Tokyo’s, and are high even considering differences of prices between the two countries. The University of California charges $14,395 on in-state students, and this is twice as high as Japan’s private institutions. To out-of-state students, public universities’ tuitions are comparable to those at private universities in the U.S., of course. It might not be the business of the worshippers of Europe, but other people would cry out loud should the University of Tokyo precipitously goes down on the rankings. (The University is already slipping rather slowly, after having disappeared from the world’s top 20 list.)
At the beginning of the 21st century, the Ministry of Education and Science launched a concept of ‘academic capitalism’ in the face of acute fiscal constraints. It encouraged infusion of private money into the budgets of 86 national (government-run) universities. Since 2005, public funding to national universities has been reduced by 1% every year. Over 30 years, this accumulates, and even worse, running costs of universities have risen rather markedly in the last few years.
For the University of Tokyo, public funding fell from ¥100 billion to ¥76 billion in these years but still accounts for roughly 40% of the University’s budget. Tuition accounts for about 10% of its revenue, and the University’s hospital contributes immensely to the budget. While the University has been more successful in drawing private sector funds, such success is limited to the STEM fields, leaving departments on humanity fields in financial difficulties. Other national universities are, of course, facing great hardships in running their programs.
Despite its leading fund raising records in Japan, the University of Tokyo’s finances are simply not comparable to top notch universities outside Japan, especially to those in the United States. The University of Tokyo’s foundation fund amasses assets of approximately ¥30 billion or $190 million, which is a fraction of $50 billion for Harvard Endowment. While Harvard stands out followed by Yale Endowment’s $40 billion, asset size of $10 billion is not uncommon among leading university endowments in the U.S., private or public. Endowments in the U.S. began taking risks in the 1980s, and have fully benefited from meteoric rises in stock and real estate markets. Worse yet, on the other hand, Japan’s Ministry of Education and Science has been until recently telling schools not to take risks in managing their funds in a land of zero interest rates. Though such directive has been dropped at last recently, schools in general are wondering how to take risks and their system is not built to accommodate risks.
Paucity of foundation funds for the University of Tokyo and other universities in Japan is attributed to an utter absence of culture to give. From a different view point, it is a culture unique only in the United States, originating from church goers who give 10% of their income. Japanese people are generous at the time of a crisis, such as an earthquake disaster, but are not so interested in giving in the absence of a catastrophic event. Japan’s tax law is unkind to large scale donations. From another perspective, the top 1% of the Japanese population isn’t wealthy enough while this cohort tends to make substantial donations.
The Ministry of Education and Science at last came to understand the importance of managing assets to make Japanese universities competitive. The ministry established a new asset management arm to manage ¥10 trillion sourced from the government. Returns from the fund are allocated to a variety of projects in the STEM fields from designated universities. While ¥10 trillion sounds like a staggering amount, it is ‘only’ $62 billion at the exchange rate at the end of June, somewhat larger than Harvard Endowment’s $50 billion. The University of Tokyo has started managing its foundation fund more actively starting in 2024, with a heavy focus on alternative investments. This is a right first step for the University to stay competitive, or at least to keep up with the rest of the world.
*Mr. Suzuki is a retired investment banker based in Tokyo, Japan.
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