The Impact Of Singaporean Preschool Subsidies

This commentary will analyse the Singaporean Government’s decision to increase subsidies for public pre-schools starting from January 2020.

Singapore, a high income economy with a gross national income of US$54,530 per capita but more importantly an HDI value of 0.935, has experienced rapid economic and social development in recent decades, and this growth can be attributed to its pragmatic policies. This simultaneous progress in both economic and social areas retirates the previously hypothesised correlation between social and economic factors regarding development, more so foregrounds the role of government intervention in unifying these two goals. The government of Singapore has played a crucial role in Singapore’s expeditious success as a developing economy. It firmly believes in the principle of meritocracy, which can be defined as a society governed by people selected according to merit. The perception is that a country’s progress is interdependent on its ability to identify talent and nurture it so as to achieve in essence it’s full potential. A byproduct of meritocracy is the rise of paternalism, which is what characterizes the political leaders in Singapore - who prioritise raising the standards of living of its citizens above all thus implementing a host of pragmatic policies involving extensive government intervention in virtually all areas of life - housing, education, medical and health services, wage policy to name a few. Although the primary objective of government policies in the past has been promoting growth enhancing activities such as a large-scale industrialization program implemented in phases, progress in social areas such as housing, education, and health has been carefully monitored and nurtured by giving generous subsidies. However as these policies are mainly motivated by pragmatism, this paper will indicate how these subsidies reduce the excludiblity factor, while maintaining the rivalrous nature of such goods, thus leaning towards the free rider problem and as such the eventual objective of the government should be to reduce such subsidies more specifically in the case of preschools, so that the problem of inefficiency in such institutions, and excess demand for social services, is avoided.

Similar to every nation, Singapore’s sole resource is its people and thus the need for nurturing and education its people remains preeminent. As stated above, the highly meritocracy orientated government of Singapore has placed paramount importance on the education since the very beginning and the fundamental of its education policy is to incorporate all institutions of education into a unified national system of education though government funding in the form of subsidies, direct state funding or generous grants. The rationale behind such profuse government expenditure is the idea of education having both social and economic benefits to society. Values of unity in diversity, nationhood in a multicultural society and social equity can only be inculcated through promotion of such values at early ages and a uniform system of education. Free or heavily subsides preschool education followed by primary and secondary education with equal access to all races and sections of society, thus nurturing them together in a cohesive environment mutes social differences which could otherwise lead to polarization, hostilities and ultimately unrest in society. The economic rationale supporting the government is also equally strong. The grave unemployment in Singapore in the 1960s and the need for a strategic economic plan suggested that the country was in desperate need of an educated and literate workforce.

However education is defined as a merit good - a good that the government thinks provides positive benefits for both the consumers of the good, and society as a whole, and therefore should be produced and consumed to a great degree. However in a free market, such a good, here the education being provided by pre-schools, is often underprovided resulting in classic market failure of positive externalities of consumption. Subsequently, in Figure 1.1 we can see that the marginal social benefit (MSB) curve lies above the marginal private benefit (MPB) curve, the shaded triangle representing the current welfare loss, and the difference between the two indicative of the external benefits society may gain, if production takes place at the socially optimal point of production Qopt, where MSB = MSC. However the quantity being produced in the market is given by the point Qm where MPB =MPC. Since Qopt > Qm, it can be said that there is underconsumption of education in society.

📷

In the case of Singapore, underconsumption of pre-school education stems from one root cause - Singapore has one of the largest income gaps in the world. Wealth is disproportionately spread among wealthy foreigners while native Singaporeans live in poverty and often have lower-paying jobs. Moreover, since Singapore does not have a national minimum wage, there is no standard for the lowest an employer has to pay an employee, leaving many without enough money to reach an acceptable standard of living. Thus a large portion of the population is willing but unable to afford preschool education. The government of Singapore thus, with the aim of making preschool education affordable to all and utilising the potential welfare gain there can be if consumption is increased, declared to introduce additional subsidies for the same.

Subsidies, which are any form of assistance by the government to individuals or a group of individuals, in this case the provision of education by the government at a lower price, have the effect of shifting the supply curve to the right ( from S1 to S2) as shown in Figure 1.2 thus achieving a lower market equilibrium price ( P2 ), achieving the goal of making pre-school education more affordable for all.

📷

The introduction of the subsidy allows consumers to obtain preschool education at a price $67 less than the existing price and since education is a relatively elastic good, such a decrease in price will increase the quantity consumed by a sufficiently large percentage, allowing society to maximise the additional benefits preschool education may potentially provide, which are numerous to say the very least. These include both short run and long run benefits both at the individual and communal degree. The economic and social impacts of educational investment are well documented. The social rate of return of investment in education in Asia, Latin America, and Africa is found to be higher than the real social rate of return of investment in physical capital. Rate-of-return studies undertaken in Singapore also indicate that returns are more than commensurate with returns from investment in other sectors (Eng 1996).

Moreover, myriad benefits accrue to the children, their families, and society as a whole. A preschool program may help to reduce achievement gaps and socioeconomic and racial inequalities by introducing children to inclusive environments at younger ages. Children who participate in high-quality preschool programs are better prepared for kindergarten and further education, are less likely to repeat a grade, require special education, or child welfare services, are more likely to graduate high school and attend college and subsequently enter the Singaporean workforce, contributing to a positive effect on the economy - raising incomes, increasing employment, raising tax revenues, generating a more skillful and productive workforce and bridging the income gap. Infact, Economist Robert G. Lynch found that investment in high quality prekindergarten programs generates billions of dollars in economic and other benefits for the federal and state governments. His study, Enriching Children, Enriching the Nation, published by the nonpartisan Economic Policy Institute, shows huge economic benefits to society as whole whether programs are universal or targeted to three- and four-year-old children from poor families,Additionally, indirect benefits to society include a greater labour force participation by parents, who are often unable to pursue jobs, to look after their young children, and an increase in demand both for a qualified teaching facility as well as unqualified labour to suffice the various jobs an educational institution such as a preschool such as janitors, healthcare assistants, security, etc, thus increasing employment in every sense. Another important indicator of The Human Development Index and a nation’s standard of living is it’s crime rate. Although Singapore is known to have one of the lowest crime rates, making it one of the safest countries in the world, recent years have seen a trajectory of 11% in the crime rate. Children who participate in high quality preschool programs are less likely to engage in criminal activity, both as juveniles and adults, and thus increasing the consumption of education may also effectively allow Singapore to maintain it’s low crime rate. Thus by making preschool education more affordable and accessible, these subsidies seemingly contribute towards an increased Gross Domestic Product, Gross National Income, and Human Development Index, which is every nation’s eutopia.

However subsidies have been a controversial and hotly debated form of government intervention for centuries now, and although at face value its merits seem exemplary, there are compelling arguments opposing them. It has been increasingly argued that high subsidies may lead to deterioration of standards and quality. This has a number of implications - deterioration of quality of staff, deterioration of facilities due to overcrowding and deterioration of personal engagement and growth for students. As the demand for teachers drastically increases, while the supply of skilled and meritorious preschool teachers remains constant, there arises a shortage and thus many preschools may employ unqualified teachers to merely promote the goal of satisficing in terms of educational institutions. This may have a reverse effect on the primary objectives of introducing the subsidy which is clearly ameliorated by the results of a preschool program in Tennessee showing that children enrolled in this program had lower test scores, poorer attitudes toward school, and worse work habits by the time they reached the third grade when compared with the children not attending the program. Infact, William Gormley of Georgetown University responded to this study by suggesting that the outcomes of the program may have been due to the K-3 teachers’ lack of knowledge, thus questioning their qualifications as preschool facilitators.

Moreover, overcrowding may lead to overuse of facilities, and the emergence of unhygienic conditions - in restrooms, physical education classes, cafeterias - breeding a host of diseases, again going against the primary aim of the subsidy.

Furthermore, subsidies rely on government funds, and high subsidies often contribute to government budget deficits. According to the Singaporean Government Budget, the introduction of these preschool subsidies are expected to more than double annual government spending in the early childhood sector in the years to follow, from around $1 billion in 2019. This pressure on the government budget is arduous to repeal, and may result in decreased spending in other areas of society, forcing the government to compromise on the overall development of society. Moreover, these high subsidies as previously stated , reduce the excludability factor, while maintaining the rivalrous nature of such goods. As a result no profit maximising firms are likely to invest in such institutions, neither in the present nor in the future, fearing the wrath of the free rider problem. Thus from an extreme economic point of view, high subsidies much alike the Singaporean preschool subsidies distort prices - the fundamental signals determining the efficient allocation of resources in an economy, resulting in an adverse impact on growth and welfare, and inciting government budget deficits.

Thus we have previewed the two extreme ends of the Singaporean Government's decision to introduce these increased subsidies, however it is important to find common ground. This common ground can be evacuated from the four underlying principles of public policies - flexibility, selectivity, coherence, and market-friendliness. Like other successful NIEs, Singapore has adopted policies that have been highly selective, flexible, market friendly rather than market repressing and have a high degree of coherence amongst them, all ultimately building upon the common goal of simultaneous social and economic development. Harmonising these intentions, the most effective policy would be to introduce a regulated and limited subsidy to ensure consumption is in sync with capacity, and quality is not compromised upon. The government's best interests would lie in the coexistence of increased consumption of preschool education and refined quality of preschool education, both of which are achieved by a limited subsidy. Moreover, subsidies involve the use of government funds that rely essentially on tax revenues. Governments generally have many possible alternative uses for these funds, each of which has an opportunity cost. If the subsidy is equal to the external benefit, referring back to Figure 1.1, and the new supply curve S2, intersects MPB at the Popt level of output, allocative efficiency can be achieved, thus balancing the opportunity costs and social welfare to a certain extent. However, in the real world it is very unlikely that governments are able to shift the MPC curve by the amount necessary to correct the positive externalities perfectly. Thus, to make up for the loss of government revenue in the subsidy, the Singaporean Government can raise taxes on opiates, nicotine, and alcohol - demerit goods, whose excess consumption has been disapproved by the government for several years.

Bill Gates once spoke about the fact that the leading indicator of where a nation is going to be in 20 years’ time is reflected in how well its education system is doing. This is perfectly captured in Singapore’s Journey. Public expenditure on education in Singapore has been rising over the years owing to increasing costs as well as enrollments at various levels.. However, the rate of increase in educational spending must effectively be checked so as to ensure that it does not exceed the GDPs growth, and a minute step to do the same is limiting preschool subsidies. This may further have a profound effect in the holistic development of the pre-school sector in Singapore, while simultaneously achieving its overarching goals of social and economic progress in every sense.

1.Making Quality Preschools More Affordable and Accessible, www.ecda.gov.sg/PressReleases/Pages/Making-quality-preschools-more-affordable-and-accessible.aspx.

2.Lim, Jeremy. “Sustainable Health Care Financing: The Singapore Experience.” Wiley Online Library, John Wiley & Sons, Ltd, 12 Apr. 2017,

onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12247.

3.Teng, Amelia. “Lower Pre-School Expenses and More Help with Fertility Treatments to Encourage Marriage and Parenthood.” The Straits Times, 28 Aug. 2019, www.straitstimes.com/singapore/lower-pre-school-fees-and-more-help-with-fertility-treatments-to-encourage-marriage-and.

4.Sanchez, Claudio. “Pre-K: Decades Worth Of Studies, One Strong Message.” NPR, NPR, 3 May 2017, www.npr.org/sections/ed/2017/05/03/524907739/pre-k-decades-worth-of-studies-one-strong-message.

5.Pettinger, Tejvan, and Lucille. “Effect of Government Subsidies.” Economics Help, 23 Jan. 2020, www.economicshelp.org/blog/915/economics/effect-of-government-subsidies/.

6.“Social Policy in Singapore: A Confucian Model?” Http://Documents.worldbank.org/Curated/En/193101468758956946/016824232_2002113371001150/Additional/multi0page.Pdf.

7. “Do Business Subsidies Lead to Increased Economic Activity? .” Https://Www.mercatus.org/System/Files/Bundrick-Business-Subsidies-Mercatus-Wp-v1.Pdf.

8.“The Economics of Subsidies.” Https://Www.wto.org/English/res_e/booksp_e/anrep_e/wtr06-2c_e.Pdf.

9.“The Impact of Competition, Subsidies, and Taxes on Production and Construction Cost: The Case of the Swedish Housing Construction Market.” Https://Www.diva-Portal.org/Smash/Get/diva2:680935/FULLTEXT01.Pdf.

10.“Government Subsidy Policy and Its Impact on Efficiency and Economic Growth.” Https://Econ.washington.edu/Sites/Econ/Files/Documents/Undergrad/Rtw-Example-2.Pdf.