The real cause of Japan’s renewed prosperity

by Walt Gardner

Special To The Japan Times

The assertion that a nation’s education system is the key to its economic health has great intuitive appeal. But it is called into question by events in Japan.

Over the last quarter of a century, Japanese students have consistently finished near the top of the pile on tests of international competition. For example, on the latest Program for International Student Assessment, Japan finished in 7th place, with scores of 536 in math, 538 in reading, and 547 in science.

Japan did even better on a new test developed by the Organization for Economic Cooperation and Development in which it ranked first in literacy, numeracy and problem solving.

Yet during the same period, Japan experienced extreme fluctuations in its economy, as seen in the stock market and in the value of the yen. Although the Nikkei 225 stock index still remains 58 percent below its peak at the end of 1989, it jumped by more than 50 percent last year alone, and the overall economy grew faster in 2013 than at any other time since 1996.

In other words, the one constant throughout this turbulent era has been the exemplary performance of Japanese students.

What explains the disconnect?

Although reformers are reluctant to say so, fiscal policy deserves credit, rather than schools. Abenomics has stimulated the economy by increased government spending, particularly through the Bank of Japan’s massive bond-buying program.

But Abenomics also includes currency management. Despite a decline of 18 percent in the worth of the yen, it is valued higher than it was at the close of 2007 when the Great Recession began in the United States. Moreover, unlike the U.S., where an endless series of scandals that began with Enron and World Com and culminated with the demise of Lehman Brothers undermined public confidence in corporate honesty, Japan has been largely spared. As a result, investors saw no reason to panic.

These facts should raise doubts about the connection between a nation’s education system and its economic health. But they persist even though a lagging education system, as measured by standardized test scores, has never been shown to create a drag on economic growth.

Consider the U.S. It has consistently ranked below average on the Program for International Student Assessment. In the latest such test, the U.S. finished in 36th place, with scores of 481 in math, 498 in reading and 497 in science.

Yet the New York Stock Exchange marked its best year in 2013, and the Dow posted its biggest gain in 18 years.

Or take California. With its position as the fifth-largest economy in the world, it is a nation-state. Critics tried to pin the blame for the state’s past debt and growing income disparity on the dismal performance of its schools. Yet California now has a multibillion-dollar surplus, even though its public schools show only modest improvement.

As in Japan, carefully designed policies account for what has happened. They came from the state legislature, with support by Gov. Jerry Brown. These were far more responsible for California’s dramatic turnaround than any significant improvement in the state’s schools.

Nevertheless, California’s proposed budget increases spending on kindergarten through high school to $70 billion, which is a $10 billion increase. Whether this expenditure will yield the hoped-for results is problematic because of the inherent boom-and-bust cycles in a state’s revenues.

Whatever doubt remains about the link between education and the economy does not mean that schools are not important. The knowledge and skills that Japanese students bring to the workplace in the form of human capital make the companies that hire them more competitive.

That can only be a plus. But if Japan’s recent history is any indication, education is not, and will not be, a panacea for the ills afflicting the country. There are simply too many other factors at work.

Walt Gardner writes the Reality Check blog for Education Week in the U.S.