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Banorte-Ixe Research Mexico Education reform – So much for PRI’s “old school” huh? Yesterday President Peña-Nieto sent an education reform to Congress In contrast to Pink Floyd’s “We don’t need no education”, in Mexico we urgently need it On one hand, the percentage of the population that has finished secondary school in Mexico is embarrassingly low at 35%, while the average for OECD and G20 countries is 75% and 72%, respectively On the other hand, Mexico ranks in the 50th place, right above Trinidad and Tobago and Montenegro in the OECD PISA standardized tests It is our take that is not just a matter of spending more, as Mexico spends around 5.3% of GDP on education, slightly below the OECD average of 5.8%, and above the G20’s 5%, but to cut deep into the education system The education reform that President Peña-Nieto sent to Congress yesterday proposes five important modifications to the system and to the law that regulates it: (1) Recover the full authority to dictate the schools’ syllabi; (2) Create a full-fledged professional structure for teachers; (3) Create an autonomous institution to certify and evaluate the education of the country, including both, students and professors; (4) Conduct periodic census to have a national registry of schools, professors, and students; and (5) Extend the school day from 6 to 8 hours in 40 thousand “full time” schools, where food will be served to students for free This reform proposal should leave no doubt that this new administration has nothing to do with the “old school” PRI, and that the country is poised to grow much more on a sustainable basis in the short-, medium-, and long-term An education reform – Another bold step to achieve sustainable growth. In his first ten days in office, President Peña-Nieto has been able to prepare a zerodeficit budget proposal for fiscal year 2013, appointed a first-class cabinet, committed with 13 presidential directives –which incorporate structural reforms and important changes to improve Mexico’s economic growth and development-, and signed an agreement with the main political forces of the nation to achieve the approval of the aforementioned initiatives. On top of these, President Peña-Nieto sent yesterday an education reform to Congress. 1 December 11, 2012 www.banorte.com www.ixe.com.mx @BanorteResearch Gabriel Casillas Chief Economist and Head of Research [email protected] Delia Paredes Executive Director of Economic Analysis [email protected] Alejandro Cervantes Economist, Mexico [email protected] The urgent need for an education reform in Mexico. In contrast to Pink Floyd’s “…we don’t need no education…” lyrics in their masterpiece album “The Wall”, we urgently need education in Mexico. There are several reasons that we elaborate in this note why Mexico needs important changes to its education system, particularly the low percentage of the population that has finished secondary school in Mexico, as well as the low grades Mexican students have got in the OECD PISA standardized tests. The urgency also stems from the young structure of the population, with an average age of 26 years old. If we do not improve the education system in Mexico now, it might be too late. Given such a young population, how many citizens are currently studying? and what? According to the Ministry of Education, there are 34.8 million students enrolled in schools across the nation. This represents around 30% of the country’s population. It is worth noting that in line with the country’s average young age, students in primary school account for 43% of the total student population. Taking a look at the breakdown by source of funding, 87% go to public schools, and 13% attend classes at private schools (please see Table 1 below). These percentages do change depending on the level of schooling. While public schools rule in lower-secondary schools with 92.2% of all the students, there is a dramatic change at the graduate level, in which nearly 52% of the students attend private universities. Table 1. Students enrolled in Mexican schools Thousand students Type of school Total Public Private Total Share of total Number % Number % 34,821 100.0 30,286 87.0 4,535 13.0 Kindergarden 4,706 13.5 4,050 86.1 655 13.9 Primary school 14,909 42.8 13,663 91.6 1,247 8.4 Lower-secondary school 6,167 17.7 5,684 92.2 483 7.8 Upper-secondary school 3,950 11.3 3,249 82.3 701 17.7 2 0.0 2 78.0 0 22.0 2,811 8.1 1,932 68.7 879 31.3 229 0.7 110 48.1 119 51.9 Technical Undergraduate Graduate Source: Ministry of Education Unfortunately education is troubled in Mexico. It is a well-known fact that education in Mexico is experiencing quite troubled circumstances, particularly if you consider two hard facts: (1) The percentage of the population that has finished not even tertiary, but secondary school in Mexico is embarrassingly low at 35%, while the average for OECD and G20 countries is 75% and 72%, respectively, as it depicted in Chart 1 (below on the left); and perhaps the most compelling issue, (2) the students’ humiliating performance in the OECD PISA standardized tests on the three levels: math, science, and reading (PISA stands for Program for International Student Assessment). In this context, Mexico ranks in the fiftieth place, right above Trinidad and Tobago and Montenegro (please see Chart 2, below on the right). These two figures provide a strong support for the urgent need for a significant education reform in Mexico. On the other hand, it could also make you think that perhaps the country needs to assign a larger share of GDP to education. 2 Chart 1. Population that finished upper-secondary school Chart 2. Where countries rank in academic performance %, Share of total Czech Republic Slovak Republic Estonia United States Poland Canada Russian Federation Sweden Switzerland Germany Finland Slovenia Austria Israel Hungary Norway South Korea Luxembourg Denmark United Kingdom OECD average Netherlands New Zealand Australia G20 Average Ireland France Chile Belgium Iceland Greece South Africa Italy Spain Brazil Mexico Portugal Turkey China Shanghai-China Hong Kong-China Finland Singapore South Korea Japan Canada New Zealand Chinese Taipei Netherlands Australia Liechtenstein Switzerland Estonia Germany Belgium Macao-China Poland Iceland Norway United Kingdom Denmark Slovenia France Ireland United States Hungary Sweden Czech Republic Portugal Slovak Republic Austria Latvia Italy Spain Luxembourg Lithuania Croatia Greece Russian Federation Dubai (UAE) Israel Turkey Serbia Chile Bulgaria Uruguay Romania Thailand Mexico Trinidad and Tobago Montenegro Jordan Brazil Colombia Kazakhstan Argentina Tunisia Azerbaijan Indonesia Albania Qatar Panama Peru Kyrgyzstan 74 72 35 0 20 40 60 80 100 Math Science Reading 50 0 Source: OECD Education at a Glance 2012 500 Source: OECD PISA evaluation results, 2009 3 1,000 1,500 2,000 It is not a matter of spending more. Comparing what the Mexican government spends on education as a percentage of GDP vis-à-vis other countries, it is clear that the real problem is not the amount of public spending. Mexico spends around 5.3% of GDP on education, slightly below the OECD average of 5.8%, and above the G20’s 5%, as it is shown in Chart 3 below on the left. As a result, we believe it is not just a matter of expanding public spending, but a matter of how these resources are used. Just take a look to the relatively low average annual salaries for teachers in Mexico. According to the OECD, teachers in Mexico are able to earn up to nearly US$ 31,000, 32% below the average for the OECD countries of slightly above US$ 45,000 (Chart 4). How can you reconcile that Mexico spends about the same (in percentage of GDP terms) as the average of the OECD countries, and at the same time, pay salaries well below them? Chart 3. Public spending on education Chart 4. Public schools teachers' annual salaries %GDP Denmark Iceland Norway Sweden New Zealand Finland Belgium Ireland Estonia Argentina Austria Netherlands France Israel Portugal OECD average Brazil Slovenia United Kingdom Switzerland United States Mexico Hungary Poland Canada Germany South Korea Spain Australia G20 average South Africa Russian Federation Italy Chile Czech Republic Slovak Republic Japan India Indonesia US$ in PPP terms Luxembourg South Korea Germany Austria Ireland Japan Canada Portugal Netherlands Belgium United States Spain Denmark France Scotland Australia Switzerland OECD average England New Zealand Norway Italy Finland Greece Sweden Israel Slovenia Chile Mexico Iceland Turkey Czech Republic Argentina Hungary Estonia Poland Slovak Republic Indonesia 5.8 5.3 5.0 0 2 4 6 8 10 Initial 15 years Max 45,100 30,602 0 Source: OECD Education at a Glance 2012 20,000 Source: OECD Education at a Glance 2012 4 40,000 60,000 80,000 100,000 Where does the money go? You can think that Mexico needs higher spending on infrastructure compared to the rest of the OECD countries. This would be mainly explained by the number of schools already built in developed countries vis-à-vis the needed ones in Mexico. However, you also have to take into account that the quality standards of classrooms, teaching equipment, labs, and other facilities in the OECD countries ex-Mexico are way much higher than in Mexico, and there are also higher costs associated with these “amenities”. In this context, it is our take that an important part of public spending in Mexico that does not permeate to the teachers’ salaries is captured by “the system”. The educational system in Mexico involves an extremely powerful union leader -in power since 1989-, with more than one million teachers under her command, making promises to keep the teachers’ jobs ad infinitum. Unfortunately we are not joking when we say “eternal job posts”, i.e. teachers in Mexico are able to avoid any sort of evaluation, while they are also able to inherit their position to family and friends. But as in every situation, there is no free lunch here. The union collects quite onerous pseudo-taxes in exchange for their services. In our view, this provides an answer to why Mexico cannot achieve high standards in education. The main axis of the education reform is to weaken the current structure. The education reform that President Peña-Nieto sent to Congress yesterday proposes five important modifications to the system and to the law that regulates it (article 3 of the Mexican Constitution): (1) Recover the full authority to dictate the schools’ syllabi; (2) create a full-fledged professorship structure for teachers; (3) create an autonomous institution to certify and evaluate the education of the country, including both, students and professors; (4) conduct periodic census to have a national registry of schools, professors, and students. INEGI will be in charge of this responsibility; and (5) extend the school day from 6 to 8 hours in 40 thousand “full time” schools, where food will be served to students for free. Recovering full authority of education policies is paramount. In our view, the first modification proposed by President Peña-Nieto and Minister of Education Chuayffet is important because back in year 1993 there was a modification in the law stating that “…even though the federal government is in charge of the general guidelines of the syllabi of schools (evaluation policies included), the government must take into account the opinion of the state governments as well as all the sectors involved in education…”. This, in our view, opened the door for the teachers’ union to get involved in the education system in Mexico from top to bottom. This allowed them to avoid certification and evaluation processes as well. The abovementioned modification will be like a trebuchet shot to start weakening the structure of the powerful union, and allow the Ministry of Education to evaluate the teachers. Another week, another reform. The education reform is just another brick in the wall of reforms that will strongly hold the country’s new structure to be able to take off. This reform proposal should leave no doubts that this new administration has nothing to do with the “old school” PRI, and that the country is poised to grow much more on a sustainable basis in the short-, medium-, and long-term. Disclaimer The information contained in this document is illustrative and informative so it should not be considered as an advice and/or recommendation of any kind. BANORTE is not part of any party or political trend. 5