The stagnation of the Japanese economy has taken a severe toll on the nation’s businesses and its lifetime employment system. It also has hit the university sector, especially private colleges, which are beginning to go bankrupt because they cannot attract enough students.

This issue popped to the surface last autumn, when newly-named education minister Makiko Tanaka, the outspoken daughter of former Prime Minister Kakuei Tanaka, tried to block approvals for three schools seeking university status. Tanaka lost that battle, as the schools and their bureaucratic backers went on the warpath. She also was among several members of the Democratic Party of Japan’s (DPJ) Cabinet to lose their parliamentary seats in a December electoral defeat for the DPJ that has returned the old-school Liberal Democratic Party (LDP) to power. Still, the issue of how to balance the growing tertiary educational sector with shrinking demand remains an urgent one as Japan struggles to reshape its labor pool to suit the needs of a mature, slow-growing economy.

The image of Japan as a land of salarymen with lifetime jobs was always somewhat deceptive, as a significant share of the workforce has always been either self-employed or working under much less stable conditions in the farming, services or manufacturing sectors. However, the economic slump since Japan’s financial bubble burst in the early 1990s has clearly eroded opportunities for workers and expanded the number of part-time contract employees with little or no job security or benefits. Many university graduates make relatively low annual salaries of ¥2 million to ¥2.3 million yen (less than $30,000), limiting their prospects for getting married or having children. Japanese women now have an average of 1.39 children, about on a par with Italy and other mature countries. Yet, while the overall population is aging and shrinking, the number of Japanese universities is still rising.

Inevitably, the excess of supply to demand for spots at the country’s 783 four-year colleges is hurting. Already, a few schools have gone bankrupt and many university education specialists expect at least 100 of Japan’s 605 private universities to go under in the next decade. “I am so puzzled by why they are setting up more universities in Japan. If you understand simple economic principles, [the colleges] will not be able to survive when Japan has a smaller number of students entering university,” says Yutaka Morohoshi, a professor at J.F. Oberlin University’s graduate school of education administration in Tokyo. He notes that about half of all private universities cannot gain enough students to meet quotas set by the Ministry of Education, Culture, Sports, Science and Technology (MECSST). This has prompted many schools to lower standards, accepting any student who applies.

Simple math dictates that the problem will only get worse. In 2010, there were 12.14 million 18-year-olds in Japan, 6.19 million of whom were enrolled in universities. Japan’s National Institute of Population and Social Security Research predicts that the population of 18-year-olds will fall to 12.02 million in 2015; 8.91 million by 2030 and 6.81 million by 2050. The institute forecasts that Japan’s total population will drop to 117 million by 2030 from 128 million in 2010; to 99.13 million in 2048 and 86.7 million by 2060. But Japan is building more universities every year. There were 512 private universities in 2000 and 605 private universities in 2012.

Many of the new universities are two-year women’s junior colleges that are having a hard time attracting students and thus are upgrading to four-year, co-ed universities, says Morohoshi, who has written many books on the crisis in Japan’s higher education system. “It is not easy for them to get more students, though, even if they become four-year colleges. They are having a hard time surviving.”

Most of the new schools are located outside of Japan’s biggest cities — Tokyo, Osaka and Nagoya. Most students, however, prefer commuting to university in Tokyo or other big cities rather than attending local schools near their homes, Morohoshi adds.

Makiko Tanaka ended up apologizing after her failed attempt to cancel the three schools’ approvals, which, despite the logic of her stance, had violated ministry procedures. In Morohoshi’s view, however, only one of the schools really should have been approved: the Sapporo University of Health Sciences, located on the northern island of Hokkaido, which will provide urgently needed professional training for nurses. “I am not sure about the other two universities being approved,” he notes. The other two are Akita Municipal University of Arts and Crafts, a two-year junior college funded by Akita City, and Okazaki Women’s Junior College, which educates kindergarten teachers. Both are typical of the type of school having a hard time getting by.

An Error of Design?

While the government officials who defeated Tanaka are well aware of the population trends in Japan, they have their own reasons for creating more universities. Without a growing number of colleges, there will be a shortage of “amakudari” — post-retirement positions for bureaucrats who “descend from heaven” once they reach a certain age, says Yasuo Kofuji, a finance professor at Senshu University. “The ministry officials are counting on taking up positions on boards of trustees or other administrative or teaching jobs,” notes Kofuji, author of the book, The Realities of University Management and Finance Analysis.

By failing to address the university business model problem, Japan is missing a good opportunity to promote revitalization of the economy, Morohoshi says. “The problem now is there are too many inferior universities that lowered standards to attract students. This has become a vicious circle. The more they do this, the more they will be disregarded and forced into bankruptcy,” adds Gregory Clark, former president of Tama University in Tokyo and a trustee of Akita International University. Despite Japan’s high rankings on international tests for younger students, “The real problem is the poor education in here in Japan [in higher education],” he says.

Although it is not a new trend, most Japanese universities demand little of their students once they are enrolled. Most schools do not use GPAs or other measures to decide whether to pass or fail students, who are seen as having expended a lifetime’s worth of energy preparing for university entrance exams. Once students get into college, they do not study but play. For most, it is their only stretch of relative freedom and leisure before entering the workforce.

One of the few private universities in Japan to adopt the GPA system is International Christian University (ICU) in Tokyo, which has been using it since its founding by Japanese and North American Christian leaders in 1949. ICU, a liberal arts college, requires students to take half of their credits in courses taught in English after attending an intensive program in the language during their freshman year. “ICU makes students leave [if they have] three consecutive quarters [with] a GPA average below 2.0, so we are using a similar standard at Oberlin,” Morohoshi notes.

While ICU, Oberlin and a limited number of other private schools can impose more rigorous standards, the finances of most Japanese private universities work against that approach. On average, those schools depend on tuition payments and entrance fees for 87% of their revenues, with the remaining 13% coming from government subsidies and other sources. Morohoshi estimates that ICU depends on tuition and fees for about 55% of its revenue. The ICU Foundation, set up in 1949, provides much of the rest. State universities, meanwhile, get 45% of their funding from the government.

Lax university educational requirements give schools plenty of leeway to tinker with such issues as student-teacher ratios and so on, with the Education Ministry limiting class size for non-science courses to 70 students to a professor. ICU, by contrast, has an average of 19 students per instructor.

Summing up the various issues, in a paper titled, “Higher Education and the Japanese Disease,” Takehiko Kariya, a professor of sociology at St. Anthony College at Oxford in the U.K., notes that large class sizes are not conducive to high standards. “This makes it hard for faculty to provide personalized guidance and feedback to students. On top of that, most classes have no reading assignments,” says Kariya, who taught sociology of education at Tokyo University for more than two decades.

The lack of any tools to enforce academic discipline is another key issue, adds Clark. “The real problem is not so much that there are too many universities, but rather, poor education,” he says. While the government finances universities in Australia, for example, and requires that the colleges admit many lower-performing students, the schools can expel those who consistently earn poor grades. “In Japan, there is no mechanism to force students to study,” Clark says.

One Foot Out the Door

Pressure to find post-graduation jobs kicks in early, further hindering studies. Companies are allowed to begin recruiting students from the autumn (the second half of the academic year in Japan, which typically kicks off on April 1) of the third year. From then on, students spend a significant amount of time visiting companies and interviewing. “Japanese university students spend so much time looking for jobs during university” Kariya notes. “If private universities can show prospective students that their graduates are getting good jobs, then more students will apply. So universities [have no incentive to] hinder students from spending so much time job hunting. This has caused deterioration in the quality of university students.”

Generally, young Japanese have only one chance to get full-time, permanent employment — immediately after graduation. Ironically, lifetime tenure at universities means Japanese professors tend to be lackluster. “Japanese universities and their teachers have never faced real global competition, and they are narrow-minded. Many are poor educators or researchers, except in the sciences,” says a professor at a major university in Japan who, due to the sensitivity of the topic, declined to be identified. “The life-employment system caused a decline in quality,” adds Kofuji.

While Japan could mitigate the consequences of this problem within a closed system, the declining competitiveness of Japanese corporations such as Sony, Panasonic and Sharp has been severely punished in the global marketplace, as the firms have been overtaken by U.S. and Korean electronics makers such as Apple, Samsung and LG. This has driven home the lesson that Japan needs more talented and global-minded college graduates. So far, however, there is no sign of progress on reforms to break out of this competitiveness trap, says Clark.

“There is nothing you can do…. If you have bad students, you have bad teachers. If you have bad teachers, you have bad students. It is the ultimate vicious circle and very difficult to break,” he notes.

The closed nature of the Japanese workforce is another hindrance: Only about 0.7% of Japan’s university-educated workers are non-Japanese, compared with an average of 10% non-native employees for all Organisation for Economic Co-operation and Development (OECD) countries, Kariya states.

“If you look at Oxford University, about 40% of the teachers are non-British. Tokyo University has only a few percent. The academic and labor markets are being protected for Japanese,” says Kariya, who notes that schools in South Korea and Singapore have benefitted from the global nature of their businesses. “Their markets are small and they have to go overseas to survive. However, Japan still has a big market, if you look at the job market and universities. Japanese do not feel a sense of crisis yet because the country has such a big domestic market and its university market is also … big.”

The nature of how universities are managed reinforces the problem, experts point out, because schools are run not by professional administrators or boards of trustees, but by faculty councils that generally compete with each other rather than coordinate or cooperate. Meanwhile, each university department is a world unto itself, providing all classes in all subjects. “For example, the economics department has its own teachers for English and other subjects,” says Morohoshi.

“None of the faculty councils consider how to effectively operate their university as a whole,” Kofuji adds. “University presidents and boards are not able to do anything without approval of the faculty councils.”

A Lack of Urgency

Given the slew of other issues Japan is facing, including recession, soaring public debt, questions about nuclear safety and frequent changes of government, it is unclear if those in a position to start making needed changes — the bureaucrats who regulate education and the politicians who generally act on their behalf — recognize the urgency of the problem.

Morohoshi proposes setting up three types of universities to suit the diverse needs of students and employers: those that focus on research; liberal arts schools, and vocational-oriented schools suited to students who are challenged by the mainstream educational system and need more support and time to master the material.

Kariya favors setting up a few new, top-quality universities. “Japan should carry out a long-term, 10-year project to set up excellent universities with top teachers from all over the world, to increase the number of global-minded and globally competitive university graduates,” he says. “If you try to improve the existing universities without long-lasting, big government funding, it will not be that effective.”