ANALYSIS ON THE JUSTIFIABILITY OF THE EDUCATIONAL SERVICE CONTRACTING (ESC) PROGRAM OF THE PHILIPPINES In Partial Fulfillment of the Requirements for the Subject ECN 3102 MW 1:30 PM - 3:30 PM By: Aviles, Rodhel John Kurz, Lawrence Sinangote, Madeleine Kate December 08, 2023 BACKGROUND Education has a vital role in the economic development of a country, especially in the progress of developing nations. A study by Denison (1966) highlights the impact of education on various aspects of the economy such as increased job market participation, enhanced household income, and effective management of family size which emphasizes both direct and indirect benefits that contribute to the economic growth of a country. However, the impact of Education faces a big challenge in the Philippines. Assessments such as PISA or the Programme for International Student Assessment, shows the consistent underperformance among Filipino students in key subjects such as Mathematics and Science. When benchmarked against other countries in Asia such as Indonesia, Thailand, and Vietnam, the Philippines lags behind in rates of enrollment and academic achievements, especially in the secondary level. These disparities underline the need to conduct a comprehensive analysis on the Philippine education system to determine which areas need improvement and what programs can be implemented to further improve this, which will be why this paper will discuss the implications of the Educational Service Contracting (ESC) Program. The major objectives of the ESC are the following: ● to relieve congestion, ● to improve quality in junior high school education, and ● to provide a lower-cost alternative to the government in the provision of secondary education. Congestion in the Philippines’ public high schools has always been a significant issue, posing a challenge to the country’s overall quality of the educational system. A growing population means that demand for education rises as well. This rising demand for education increases congestion in schools which reduces the overall quality of education and restricts qualified students from enrolling as the school is already full. A study conducted by Oni (2013) highlights that crowded classrooms do not only have a straining effect on the students, but also on the educators. A crowded classroom means that there are more students to cater to, and teachers may not have enough time and resources to provide individualized attention to each student. In relation to this, a study conducted by Madigan & Kim (2021) shows that a teacher burnout has an impact towards the overall performance of a student. This strain on educators affects their ability to provide quality education to their students, which leads to lower performance among students. Recognizing this allows policymakers to address classroom congestion to mitigate the negative effects of this to the students and the teachers. Increased demand for education brought about an increase in population, increasing the overall cost-per student to receive education. An increase in this overall expenditure, wages of educators, and the purchase of technology and materials drive this financial burden higher. Stressing on educator wages, there is a need to attract and retain talented educators with attractive compensation that puts an additional burden to the budget, especially in the context of large class sizes. A study by Garcia & Han (2022) suggests that there is a huge correlation between the wages of educators and student performance, backed up by higher test scores in Mathematics and English. Enhancing the overall quality of education in the Philippines is associated with escalating costs which directly link to the rise in per-student cost. A consistent upward trend in cost of education places a huge financial burden on students and their families which most of the time, puts them in a position where they cannot afford education anymore, or they may resort to more affordable, but more often lower-quality educational alternatives The Education Service Contracting (ESC) program was first introduced in 1977 in the Bicol Region by the Foundation for the Assistance to Private Education (FAPE) which later expanded their operations nationwide in 1989. This program was designed as a “public school system in a private school setting” which had a main focus of navigating these complexities and striking a balance in the educational ecosystem. As of 2021, there are 1,031,193 ESC grantees and 3,632 partnered schools that are accredited by ESC. Through a public-private collaboration incorporating private schools, the ESC aims to solve concerns such as public school overcrowding, improve education quality, and manage expenditures. The purpose of this article is to examine the justifiability of the ESC program's execution in terms of efficiency improvement. The scope of this program is also assessed to see whether there are enough or too many scholarships available through ESC. This report also assesses the program's performance in meeting its policy objectives and its cost-effectiveness. The ESC addresses the broader context of educational challenges in the Philippines, and this article assesses whether the ESC program has successfully addressed these concerns through its implementation. The Educational Service Contracting program, which has partnerships in both the public and private school sectors, aims to solve the congestion problem in public schools, improve educational quality, and manage the growing expenses connected with education. The goal of this paper is to identify the justifiability in terms of efficiency improvement of the ESC program’s implementation. The scale of the program is also assessed whether ESC is overprovided or underprovided. Further, it also evaluates the ESC program's efficacy in attaining its policy objectives and its cost-effectiveness. The study's backdrop emphasizes the larger context of the Philippines' educational issues, the government's response through the ESC program, and the need for a thorough evaluation to identify prospective policy and implementation changes. ANALYSIS Governments spend a lot on education. In fact, the Philippines classifies the Department of Education (DepEd) as a priority sector, allocating 852.8 billion of the 5.268 trillion 2023 budget with 11.05 billion going to the Education Service Contracting (ESC) program. DepEd’s budget is the highest among departments. This follows the provision in the 1987 Constitution stating “the State shall assign the highest budgetary priority to education.” The government hopes to address a number of issues related to the education system by making these priorities, such as developing better infrastructure, raising the standard of instruction, increasing access to schools in underprivileged areas, and advancing educational equity and inclusivity nationwide. Table 1 shows the substantial growth of DepEd’s budget from 2010 to 2023. Even so, the country’s education system is still suffering from problems particularly congestion and subpar quality of education despite high expenditures. This highlights the significance of an efficient provision of value education. Table 1 Department of Education’s budget, 2010-2023 Year Budget (billions) Year Budget (billions) 2010 172.8 2017 543.2 2011 207.3 2018 672.4 2012 238.8 2019 665.1 2013 292.7 2020 692.6 2014 309.5 2021 751.7 2015 367.1 2022 788.5 2016 434.5 2023 852.8 Note. Compiled from Department of Budget & Management of the Philippines’s Budget at a Glance. To justify the ESC program of the Philippine government based on (a) efficiency improvement and (b) scale of the project, this section of the paper discusses both key areas, first, in the context of education as an impure public good, the positive externalities generated, and equitable provision. These sub-key points point out the need for government intervention, specifically the implementation of government programs like the ESC program that address education efficiency improvement in general. After these general sub-key points, the three main objectives of the ESC program – (i) decongestion, (ii) improvement in quality of education, and (iii) cost-effectiveness – identified in this paper are examined. Lastly, the scale of the program with respect to the aforementioned goals is reviewed whether ESC is underprovided or overprovided. Education as an Impure Public Good The questions of whether conditions exist for government action are related to the determination of education as a public or private good (Locatelli, 2018). From a limited perspective, the economic theory of public goods could classify education as a private good. While it may not entirely fit with the characteristics of pure public good, such as nonrivalry and non-excludability, education exhibits elements of rivalry in consumption, especially as student numbers increase, potentially resulting in diminished individualized attention and resource stresses. Also, education is excludable in the sense that it is possible to exclude persons from obtaining particular educational services. Indeed, it is possible to exclude students from a classroom, and having more students in a class can have a rival effect on the quality of education that is given and received (Menashy, 2009). Therefore, if education turned into a private good, people acting through market mechanisms would be in control. Regardless of these considerations, basic education has become a free, publicly accessible, and mandated service provided by the state in the majority of countries, demonstrating the nonrival and nonexcludable characteristics of a public good (Menashy, 2009). The idea that education is a public good highlights how important it is for the government to protect everyone's right to an education, as well as to uphold social justice and the general interest in education. Governments are therefore required to actively provide or fund educational opportunities, particularly during required schooling (Locatelli, 2018). This helps achieve the Sustainable Development Goal number 4 (SDG 4), which calls for free public elementary and high school education for twelve years, nine of which must be required. Government intervention in the supervision of impure public goods is justifiable because it corrects market failures by eliminating free riding and guaranteeing fair access (United Nations Industrial Development Organization, 2008). McMahon (2010) stressed that individuals who receive the positive externalities of an educated population, such as a more skilled workforce and a higher overall level of societal well-being, without investing in or directly financing the educational system through taxes, tuition fees, or other contributions, are considered free riders in education. This issue can lead to underfunding and inefficiencies in the education system, necessitating government involvement to guarantee an equitable distribution of educational expenses and benefits. Implementing novel funding mechanisms, such as public-private partnerships like the Educational Service Contracting Program, enables the government to effectively mobilize resources without depending primarily on traditional taxes or levies. Furthermore, government engagement allows for optimal resource allocation, long-term planning, and externality management, boosting efficiency and serving the greater interests of society. Education and its Positive Externalities A government intervention in education is justified by other economic factors, mainly the positive externalities that education produces. Those who see education as an impure public good see that it may be rival and excludable. One possible positive externality is that education is a major socialization factor (Rosen & Gayer, 2014). Education is an important socialization aspect, molding individuals into engaged and responsible members of society. Individuals gain not only academic information but also important social skills, values, and conventions through formal education. Schools provide a structured environment in which kids learn to connect with peers, respect authority, and negotiate social dynamics, all of which contribute to the development of well-adjusted and socially competent citizens. Education has a number of positive externalities that reach beyond individual learners and have a beneficial influence on society. To substantiate this, Berger and Fisher (2013) report that an educated workforce is correlated with higher economic production. Individuals are better prepared for higher-paying and more skilled professions as a result of their education, which contributes to general economic growth and development. Greater levels of education are associated with reduced unemployment rates, since well-educated people are better suited to adjust to changes in the labor market (International Labor Organization, 2016). Education also plays an important role in improving health outcomes, since educated people make better health decisions and live healthier lifestyles. To add, education promotes civic engagement since well-educated people are more likely to participate in community activities and positively contribute to the democratic process through informed voting (Organization for Economic Co-operation and Development, 2006). Moreover, education helps to reduce crime rates by giving people alternatives to illegal activity. It also promotes innovation and technical growth by encouraging creativity and critical thinking, which leads to advancement in a variety of sectors. Education fosters social cohesiveness by encouraging understanding and tolerance among people from different origins, resulting in a more inclusive and peaceful society (United Nations Office on Drugs and Crime, 2017). Finally, Glaeser, Ponzetto, and Shleifer (2006) prove in their empirical study that an educated populace is critical to the running of democratic societies, since education equips citizens with the information and skills to make informed political decisions, contributing to the stability and efficacy of democratic government. These positive externalities underscore education's complex and far-reaching advantages, expressing the need for government mediation and efforts like the ESC program. Education Equitability and Provision Commodity egalitarianism aids in explaining the wide appeal for public education wherein the belief that all people should have access to at least some degree of education (Rosen & Gayer, 2014). The concept emphasizes a commitment to making education, as a societal commodity, available to all, creating a more equitable and inclusive educational system. When education is viewed as a normal good, the inevitable result in a free market economy is the creation of varied educational levels among various classes of people. Families with greater incomes may have access to a more extensive and higher-quality education, while those with lower incomes may have limited or no educational possibilities (GGI Insights, 2023). Commodity egalitarianism, on the other hand, rejects this market-driven conclusion by arguing that education should be a universally available resource for all citizens, independent of the accompanying economic reasons. This viewpoint is especially prevalent in elementary and secondary education, where there is a widespread belief that basic educational opportunities should be made available to all students, regardless of financial means, fostering a more equitable and inclusive educational landscape (OECD, 2012). The book by Rosen and Gayer (2014) also mentions that whatever the argument for offering free public schools, economic theory has revealed that such a system does not inevitably motivate everyone to consume more schooling than they would in a private market. Increased accessibility to public education may sway individuals toward more affordable options, potentially diminishing the demand for private educational services. The perceived cost advantage of public schools can be a driving factor, especially for those facing financial constraints. However, the impact varies based on factors such as the quality of public education, societal preferences, and the distinctive offerings of private institutions (OECD, 2012). While some may opt for public options, others may still choose private education for its specialized services or unique approaches. The case for privatizing the provision of an impure public good like education is frequently based on the efficiency that competition in the private sector may create (Locatelli, 2018). Despite the potential benefits of private service, governments may still opt to invest in education for the reason of guaranteeing universal access to education as a critical component of social fairness and economic mobility. Governments may step in to mitigate educational inequities that may develop from a strictly market-driven approach. Sadeh et al., (2020) argue that even in systems where private provision predominates, governments may intervene to assure fair access, control quality standards, and correct market failures to protect the public interest. In summary, while private supply may provide some efficiencies, government expenditure on education is frequently a strategic investment in developing a well-educated and productive population for the benefit of society as a whole. According to Rosen and Gayer (2014), depending on one's educational degree, education has different external benefits. For instance, elementary and secondary education produce greater external advantages than higher education if the socialization effects of education show diminishing marginal returns. This suggests that government intervention in higher education should be less than at earlier educational levels. In actuality, compared to higher education, basic education receives more funding. Furthermore, with the impure public good characteristics of education, government intervention is made reasonable. Its efficient provision also lies in how the Philippine government can manage it. All these lead to why the government has to continuously support public expenditures like the Educational Service Contracting program. An assessment of the ESC program based on its objectives can further support its justifiability as a government program. To recall, this education initiative is aimed at decongesting public high school classrooms, improving the quality of education, and lowering the costs to the government for public high school students. The succeeding paragraphs discuss each objective with salient facts. Decongestion. Congestion issues among classrooms were not addressed efficiently by the ESC program. It heavily targets households with less extra income to motivate them to invest in their children’s education as a form of human capital. In return, private schools can attract more enrollees and divert the congestion problem away from public schools. Unfortunately, as of 2020, approximately 425 private elementary and high schools across the country have shut down. The spokesperson for the DepEd noted that approximately half of these students, around 10,000, subsequently enrolled in public schools (Chanco, 2023). Table 2 shows current enrollment stands at 27,232,095, reflecting a 3.83% increase from the previous year, with public schools experiencing a 5.23% rise, while private schools witnessed a slight decrease. Table 2 Comparison of Enrollment for A.Y. 2020-2021 and A.Y. 2021-2022 Sectors Public Only Private SUCs/LUCs Philippine Schools Overseas Total S.Y. 2020-2021 S.Y. 2021-2022 % (this S.Y. compared to last S.Y.) Increase/De crease in Enrollment 22,712,409 23,900,041 5.23% 1,187,632 3,375,748 3,212,728 -4.83% (163,020) 118,755 103,551 -12.80% (15,204) 20,110 15,775 -21.56% (4,335) 26,227,022 27,232,095 3.83% 1,005,073 Note. Adapted from https://www.deped.gov.ph/2021/11/18/deped-posts-4-increase-in-enrollment-f or-basic-education-in-sy-2021-2022/ Improvement of Quality Education. The ESC program does not show a direct impact on the overall quality of education in the Philippines. To track the overall performance of students throughout the years with the implementation of ESC, the paper will be looking at Trends in International Mathematics and Science Study (TIMSS) and Programme for International Student Assessment (PISA) which gives accurate and timely trend data about students' performance in Science and Math relative to students worldwide. The TIMSS figure in Exhibit 1 illustrates consistent scores for both science and mathematics in 1999, followed by a notable increase in 2003. However, a considerable decline of over 100 points is evident in 2019. Unfortunately, these are the only years that the Philippines participated in the assessment. Conversely, the PISA illustration in Exhibit 1 depicts minimal change in results, implying a lack of significant improvement in the overall quality of our educational system. Further examination reveals that if genuine improvements have indeed taken root in our education system, such advancements should manifest in the scores, especially given that the participants in these tests align with the criteria of the beneficiaries for the Education for Sustainable Development (ESD) program, focusing on 8th-grade students and 15-year-olds. The results raise compelling questions about the effectiveness of educational strategies, prompting an exploration of whether the current methodologies and initiatives align with the specific needs and challenges faced by students in this crucial phase of their academic journey. Exhibit 1 PISA & TIMSS Results for Philippines Note. Retrieved from the Organization for Economic Co-operation and Development. Cost-effectiveness. The ESC program is cheaper than the government provision of secondary education. Former Education Secretary Edilberto de Jesus (2022) argues that the government spends P18,000 more per DepEd student overall than parents pay for private school tuition (P8,000), with the exception of the National Capital Region and Region IV-A. This is poor given that over 90% of K-12 enrollment is controlled by the Department of Education (DepEd) so it should benefit from economies of scale. International evaluation assessments also contradict what would be the strongest justification for DepEd's costs: that it provides a higher quality education than private schools. In contrast, ESC has an approximate cost of Php 10,702.55 per grantee given the ESC budget of Php 11.05 billion, which covers 1,031,193 grantees for AY 2023–2024. Tables 3 and 4 reinforce the notion that ESC is a lower cost alternative to direct provision of public junior high school education of the government since more than a decade ago. Table 3 Cost to DepEd of a Public High School Student, AY 2009-2010 GAA 2009 in nominal Php* Personnel Services 36,086,046,000 Direct MOOE 5,785,446,000 Capital Outlays 5,557,350,000 Total Projected enrolment for AY 2009 - 2010 Per student cost in nominal Php 47,428,842,000 9,048 5,241,806 Note. Adapted from The Education Service Contracting (ESC) Program of the Philippines report by Michael M. Alba *Data from the General Appropriations Act of 2009 Table 4 Cost to DepEd of an ESC Grantee, AY 2009-2010 # of Grantees Grant subsidies Amount in nominal Php 2,426,525,000 Administrative costs 51,000,000 FAPE Training grant 40,000,000 FAPE Research grant 30,000,000 Total Cost/grantee 476,776 2,547,525,000 5,343.23 Note. Adapted from The Education Service Contracting (ESC) Program of the Philippines report by Michael M. Alba. Based on DepED-FAPE ESC MOA for SY 2008-2009 The classroom capacity of public high schools is a persistent problem in the country. Nearly four million students are forced to attend overcrowded public schools. Certain classes in metropolitan areas have more than a hundred pupils, far above the Department of Education's suggested maximum of forty-five students per class (Jones, 2017). The Education Service Contracting (ESC) is one of the educational programs implemented to solve the issue by encouraging public school students to transfer to private schools in their secondary education. However, the congestion of classrooms is still a relevant concern in the country. Macasero (2023) reported that the Department of Education (DepEd) revealed a concerning shortage of 159,000 classrooms for the upcoming 2023-2024 school year, a significant increase from the previous year's deficit of 91,000 classrooms. This underscores the ongoing challenges in achieving adequate educational infrastructure to meet the needs of the growing student population. Ensuring the proper distribution of resources in the education sector is a critical economic consideration. In the Philippine context, there is a clear problem of insufficiently allocating resources to public high schools, resulting in classrooms being excessively crowded. The government's allocation of resources for education should ideally lead to equitable outcomes, ensuring that all regions meet the specified classroom-student ratios. Based on Table 5 the ratios change by a small margin and reveal the ratio to have decreased by 1:39. Despite improvements in the student-classroom ratio, it is important to note that certain regions still face challenges in addressing classroom congestion issues. According to Navarro’s (2022) discussion paper, despite national progress in reducing school congestion, regional disparities in classroom-student ratios persist. Table 6 demonstrates that certain regions, including the Bangsamoro Autonomous Region in Muslim Mindanao, Region XI, Region IV-A, and the National Capital Region, surpass the target ratio of 1:40. Table 5 Classroom-student ratio in the Philippines, S.Y. 2010-2011 to S.Y. 2019-2020 School Year High School 2010-2011 1:53 2011-2012 1:53 2012-2013 1:51 2013-2014 1:49 2014-2015 1:48 2015-2016 1:35 2016-2017 1:39 2017-2018 1:36 2018-2019 1:40 Table 5 continued 2019-2020 1:39 Note. Retrieved from “School Infrastructure in the Philippines: Where Are We Now and Where Should We Be Heading?” by A.M. Navarro, 2022, PIDS Discussion Paper Series no. 2022-10. Philippine Institute for Development Studies Table 6 Classroom-student ratio by region and school level (public), A.Y. 2019-2020 Region High School National Capital Region 1:39 Cordillera Administrative Region 1:48 Region I (Ilocos Region) 1:29 Region II (Cagayan Valley) 1:31 Region III (Central Luzon) 1:28 Region IV-A ( Calabarzon) 1:36 MIMAROPA 1:48 Region V (Bicol Region) 1:36 Region VI (Western Visayas) 1:39 Region VII (Central Visayas) 1:35 Region VIII (Eastern Visayas) 1:39 Region IX (Zamboanga Peninsula) 1:34 Region X (Northern Mindanao) 1:40 Region XI (Davao Region) 1:37 Region XII (Soccsksargen) 1:41 Region XIII (Caraga) 1:40 Bangsamoro Autonomous 1:34 Region in Muslim Mindanao 1:54 Table 6 continued Note. Retrieved from “School Infrastructure in the Philippines: Where Are We Now and Where Should We Be Heading?” by A.M. Navarro, 2022, PIDS Discussion Paper Series no. 2022-10. Philippine Institute for Development Studies Some regions have formulated alternative approaches to accommodate the excessive student population and scarcity of classrooms. In Quezon City and Caloocan City, schools have resorted to dividing students into morning and afternoon classes and repurposing facilities as makeshift classrooms (Flores, 2014). These alternative solutions are insufficient in resolving the congestion issue. As shown in Table 7 double-shift classes are still unable to provide every student with a classroom, even with a large maximum capacity. Region IV-A has a total of 1,098 classroom shortages from three of their divisions, followed by Region IV-A having 950 classroom shortages in total as of August, 2022. Table 7 Double-shift classes due to congestion in classrooms with a maximum of 45 students, August 2022 Region Division Municipality Shortage XI Davao City Davao City 594 IV-A Antipolo City City of Antipolo 525 IX Zamboanga City Zamboanga City 474 IV-A Dasmarinas City City of Dasmarinas 354 NCR Paranaque City City of Paranaque 349 NCR Caloocan City Caloocan City 307 NCR Taguig Taguig City 294 CARAGA Butuan City Butuan City (Capital) 259 XII Kidapawan City City of Kidapawan (Capital) 242 IV-A Calamba City City of Calamba 219 Note. Adapted from https://www.teacherph.com/deped-projected-classroom-shortages-face-to-face-classes/ The goal of enhancing the Philippines’ quality of program using the program has proven uncertain effectiveness in achieving. The results from TIMMS and PISA, showcase that the test scores have either increased by a small margin or decreased. The congestion of classrooms could be a factor due to the high classroom ratio. According to research by Blatchford et al. (2011), student engagement decreased in larger classes. The educators discovered it most unexpected that the students who were disengaged from school were also the ones who were having the greatest difficulty. The inefficiency in government spending on secondary education becomes evident, especially given the expected economies of scale associated with the Department of Education (DepEd). The budget allocation for the ESC program in S.Y. 2023-2024 further solidifies its position as a more cost-effective alternative to direct government provision of education. The ESC initiative in the Philippines strives to enhance the efficiency of education delivery, emphasizing decongestion, quality, and cost-effectiveness. However, the program has encountered challenges leading to under-provision for the three goals. Classroom ratios in the country are still congested even with double-shift classes. Quality of education in the country did not improve based on the test scores. Although the program exhibits commendable cost-effectiveness and encourages government investment in human capital, there is potential for further impact by expanding participation of schools, thereby facilitating increased transfer opportunities for public school students to private institutions. CONCLUSION The Educational Service Contracting (ESC) program of the Philippine government is justified based on its efficiency improvement as any program on education accounts for the need for government intervention and initiatives. Education is an impure public good, it generates substantial positive externalities, and there is a need to make it equitable. These give grounds for extensive government expenditures and funding for programs like ESC. Furthermore, the heightened per-student cost in public secondary education further complicates the situation, limiting accessibility for some students. In response to these multifaceted challenges, the government is allocating substantial budgets and introducing initiatives like the Education Service Contracting program. The program is designed to alleviate classroom congestion, improve education quality, and introduce a cost-effective measure to counter challenges in achieving its objectives. However, with respect to these objectives, the ESC program is underprovided especially in terms of the decongestion of classrooms and improvement in education quality. Nonetheless, ESC still remains as a cost-effective alternative compared to the direct costs associated with government spending on public high schools. This paper supports the need for the expansion in coverage of the ESC program. The government should expand its coverage through increasing the number of grantees and ESC accredited schools. 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