Financing Vocational Education: Concepts, Examples and Tendencies - IIEP Contributions No. 24 (IIEP, 1996, 58 p.)

1. Introduction

The financing of vocational education is of increasing concern to governments as well as, in many countries, to industry. This renewed interest is often due to adverse economic and financial conditions, but it is also linked to the search for cost-effectiveness in a context of intense international competition.

Over the past decade many countries have been forced to introduce economic adjustment and stabilization policies. Such programmes have had serious effects on patterns by which governments finance education (Samoff, 1994). In many cases, adjustments led to drastic measures aimed at minimizing government spending and transferring costs to other actors. This orthodox policy has not left vocational education unscathed. In this context, higher unit costs constitute an additional handicap in the financing of training.

It is difficult to measure the bulk of spending allocated to vocational education and training. Official data, such as those published by UNESCO, usually refer to central government expenditures, overlooking spending made by decentralized units, such as local governments which, in certain countries, may play a significant role in financing training. In addition, the integrated nature of secondary education in some systems does not allow for the easy differentiation between the vocational and general components. In fact, the lack of clear definitions makes it difficult to produce comparative data. Finally, a large share of investment in vocational education, by companies and individuals, often remains invisible. As data on the different sources of financing are not always recorded in an exact manner, it is possible that the overall financial effort involved in training is underestimated.

In a context of financial scarcity, vocational education has to provide clear evidence of economic and social returns. In many countries, such evidence is lacking, which is threatening the sustainability of the system and leading to a thorough questioning of vocational education. At the same time, in a period of high unemployment, political pressure to expand vocational education often becomes more intensive.

Vocational education has been an important component of international assistance to education (Middleton; Zidennan, 1993). However, project support has often been preferred to a more integrated sectoral approach. Recent shifts in international assistance seem to seek sustainability through a long-term strategic approach. Current directions include institutional capacity-building, strengthening private training and training by the employer, improving the management and efficiency of public institutions as well as their capacity to raise funds. At the same time, support for general secondary education seems to be considered as a priority for the fostering of flexibility, the increasing of ‘trainability’ and the achievement of equity (Hallak, 1990).

Although the reference to so-called ‘models’ is frequent, the overall management and co-ordination of national training systems is quite varied, ranging from centralized planning to market-oriented regulation (Caillods, 1994). Similarly, financing training modes are very diverse and far more complicated than a simple choice between public spending and earmarked payroll taxes. Such a diversity, combined with the constant evolution of national systems, makes overall comparisons somehow difficult. However, it is worthwhile identifying and analyzing the range of options available. With this in mind, this chapter reviews the main issues and focuses on selected country experiences, illustrating different kinds of strategies and instruments involved in the financing of vocational education.

The assumption of this chapter is that funding policies for vocational education should not be considered as purely a combination of financial devices and mechanisms commanding the collection, allocation and spending of resources. They also reflect and have an impact on the distribution of authority throughout the system: controlling finance is always a major asset in influencing the decision-making process (Atchoarena, 1994). Furthermore, if one also considers that the training system must prove highly adaptable to economic, technological and organizational change, the financial participation of various kinds of partners and, in particular, industry, may not only increase the availability of funds but, eventually, have a positive impact on training volume and content.
2. Issues and policies

2.1 The emergence of new principles of government intervention: cost sharing and subsidiarity

Wide recognition that the State can no longer assume alone the financial burden of vocational education has led to the development of new modes of government intervention such as cost-sharing and subsidiarity. The effort of governments to share the cost of education, including vocational education, with other members of society has now become a global phenomenon, affecting both developing countries and industrialized nations (Gasskov, 1994). Apart from being an expression of cold pragmatism -compensating for the decrease in government spending - cost sharing corresponds to the belief that the financial burden of education should be distributed among all beneficiaries (Birdsall, 1986)). Hence, employers and individuals who take advantage of higher productivity and income should contribute to the cost of vocational education.

Implementation of the cost-sharing principle has led to the introduction of a diversity of measures, such as student fees, employer sponsorship of trainees, technology-transfer grants and contracts from industry, sale of continuing education services, sale of other products and services. Deferred payment through the use of loans has also been considered as a promising way of securing resources from students, based upon their future income. Although student loans have mainly been implemented at university level, such a system can be applied to other levels and forms of education, including post-secondary technical education.

Together with cost sharing, the principle of subsidiarity tends to become a central tenet in the clear definition of the respective roles and responsibilities of the various levels of government, including in public spending. In brief, subsidiarity holds that the central level should only control what cannot be done effectively at a lower level.

In the field of vocational education, it seeks to uphold the local dimension of the training system or, at least, the relevance of training provision vis-a-vis the needs of local labour markets. Therefore, within a decentralized framework, financing training should be organized according to the principle of subsidiarity, the central state only supporting programmes that cannot be efficiently covered by lower entities, for instance, those considered to be critical for industrial development strategies or those aimed at vulnerable groups.

However, in practice, even assuming that local governments have a comparative advantage in providing training, the huge differences observed in tax base at this level would hardly ensure an adequate amount of finance. Hence, the central government may retain the role of harmonizing funding in order to guaranty minimum standards across the country.

In spite of the far reaching implications of cost sharing and subsidiarity, many economic justifications remain for the subsidizing of vocational education services. First, benefits are not only captured by individuals, or firms, but have a spill-over effect on the entire society. Indeed, assuming that most initial training is transferable, vocational education may be considered as a quasi-collective good, just like general education. Secondly, economies of scale can only be achieved through providing services to a significant share of the population. Finally, in the absence of sufficient knowledge of the costs and benefits of alternative forms of education, it is doubtful whether individuals, or enterprises, are able to make the best decisions. This lack of information would then lead, at the macro-level, to a state of underinvestment in training.

In addition to the economic rationale, it is arguable that leaving the vocational education of the disadvantaged groups in society entirely to what they could buy on the open market would be socially unacceptable. Therefore, training for such groups must rely on public money, although other sources can also contribute.

2.2 Apprenticeship: sharing training responsibilities and costs

In many countries, apprenticeship constituted the traditional way of educating the labour force for craft production. Progressively this training mode, which involved skills being imparted on-the-job by masters to young people, was transferred to industrialized business. Compared to other training modes, apprenticeship is characterized by its capacity not only to train but also to organize the process of transition of the young labour force to the labour market (Greffe, forthcoming).

Through apprenticeship, the cost of training is borne by the employers who, in turn, compensate for the poor productivity of new apprentices through low wages (below the marginal productivity rate). Therefore, in its traditional form, apprenticeship is a cheap way of training young people for the State, the cost being shared between the employers on one side and the apprentices, and their respective families, on the other.

Another advantage of apprenticeship remains in the way it adjusts, at least in theory, training provision to the needs of the enterprise, in accordance with business cycles. Therefore, it is often argued that this system ensures efficient resource allocation through market forces.

For all these reasons, largely brought to light by the popularity of the German dual-training system, apprenticeship features prominently in the international debate on vocational education (Timmermann, 1993). This is the case not only in industrialized economies but also in developing countries. In fact this issue is marked by a strong current in favour of the introduction, modernization or development of the apprenticeship system. However, the actual implementation of the ‘model’, in terms of the rationale inspiring it (training or employment policy) or the operational features (labour status, duration, wage rate, dual or company based etc.), differs widely from one place to another.

Considering such variations, the term ‘apprentice’ itself can be misleading. It is applied to very different activities and attainments across countries. As a result, the concept of apprenticeship, often equated to the term ‘dual training’, is, in fact, relatively vague, if not ambiguous.

Similarly, the term market ‘financing’, often used for apprenticeship, can be a source of misinterpretation. Although, in the theoretical model, training is financed, on one side by employers investing in apprentices’ skill formation, and on the other side by individuals, the apprentices, and their respective families, accepting low wages and sometimes paying fees, contemporary apprenticeship combines market financing and public intervention. For instance, various legal instruments, such as fiscal or monetary incentives, often make it attractive for employers to take on apprentices. In addition, in systems based upon the concept of duality of training, centre or school-based training is usually financed out of general taxation.

Yet, the actual mechanisms being put in place to finance apprenticeship should not only be evaluated from the point of view of financing and training concerns but should also be seen within the framework of labour market policies.

2.3 The consumer rationale: privately financed institutional training

Private institutions tend to make an increasing contribution to training. They constitute a very heterogeneous sector, difficult to define and to clearly delineate. Legal status, ownership, objectives, operations and, of course, financing are some of the criteria differentiating private vocational schools and training centres.

Tuition fees, paid by individuals or enterprises, usually represent a significant, if not a major source of income. However, in many countries, private institutions also benefit from government financial allocations and tax incentives. Institutions linked to NGOs may raise a significant share of their resources through donations.

It is arguable that private training institutions constitute a market-financed response to a growing social demand. Apart from reducing reliance on the state budget, it is hoped that the private sector can promote fair competition, eventually leading to cost reduction. Yet, the quality of training given by this sector varies immensely from one institution to the other. In fact, the variation in quality may be much wider within the private sector than for public institutions that have to meet certain standards. It is doubtful that this issue of quality control can be resolved by pure market mechanisms. In many countries, governments are developing information on training supply and trying to regulate the training market by introducing accreditation and monitoring mechanisms for private institutions.

Apart from the quality issue, private provision raises the question of access for low income groups. A fair system should make provision to grant financial assistance to students from the poorest families. Furthermore, past experience has shown that private institutions have a tendency to invest in ‘cheap to teach’ subjects, leaving programmes requiring heavy infrastructures to government. This short-term market rationale limits the capacity of the private sector to provide a viable alternative to public provision (De Moura Castro, 1995). Nevertheless, it can be a useful supplement to public structures and finances.

The market approach to vocational education does not only lead to the development of private institutions. It also has an impact on the way public institutions are managed and financed. In particular, it is argued that market incentives provide a better manner of allocating resources. Apart from the introduction of cost-recovery measures, this policy advocates giving institutions autonomy over programmes, admissions and financial resources. Increasing financial autonomy may also encourage public institutions to develop income-generating activities and seek local solidarity through strengthening links with businesses and communities in their environment. Besides attracting donations in cash or kind, such a strategy is meant to improve the capacity of institutions to assess training needs at the local level.

Increasing accountability is usually the counterpart of more autonomy. In the context of a decentralized and competitive framework, institution managers are encouraged to move away progressively from the traditional pattern of basing budget estimates on allocations of previous years, in favour of a system based on performance.

Introducing the use of vouchers can offer an alternative way of allocating funds to training institutions (Herschbach, 1993). In line with the principle of consumer-paid services, this mode of intervention reflects a major shift towards a demand-driven formula. This funding arrangement, based on output rather than on input, requires, among other things, that individuals and enterprises be fully informed of the programmes of institutions and their performance. However, their large scale use would introduce instability and eventually threaten the sustainability of the training system.

Whatever the mechanism might be, the allocation of public money to institutions enjoying greater autonomy inevitably raises the issue of control. The market-feedback system is often said to be the most effective. Nevertheless, some reservations can be made concerning its reliability, taking into consideration the information problem and the need to follow certain national objectives, such as the promotion of labour mobility or giving priority to specific groups.

2.4 The use of earmarked taxation to finance training

International data tend to show that, although general taxation still represents, in most instances, a major source of funding, especially for initial training, earmarked taxation now constitutes a significant option. It usually takes the form of a payroll tax and finds its justification in the equity principle, which stipulates that enterprises should be responsible for the cost of the education which is of direct benefit to them (Whalley; Ziderman, 1989,1990).

Although the human capital theory indicates that enterprises benefit from investment in training, they may actually under-invest due to the so-called ‘poaching effect’. This phenomenon, also described as a ‘free-rider issue’, reflects the fact that some ‘smart’ employers, rather than investing in training, prefer hiring (‘poaching’) workers that have been trained by a competitor. Eventually, this risk may discourage employers from training their employees beyond enterprise-specific skills, resulting in an overall underinvestment in human capital. Correcting such a ‘market failure’ requires State intervention, such as introducing a payroll tax to finance transferable training.

Subject to renewed interest, payroll taxes cannot be considered as a financial innovation: let’s remember that they were first introduced in Brazil in the early 1940s. Their great potential for expanding the tax base under which training is financed explains the wide dissemination of training levies and their adaptation to various national conditions in developing as well as in developed countries, notably in Europe (Drake; Germe, 1995).

Financing systems based upon payroll taxes are often classified into two groups (Whalley; Ziderman, op. cit.): the revenue-raising schemes, and the levy grant or rebate schemes. Each type corresponds to a different objective. Revenue-raising schemes are usually implemented to finance the establishment of a training system (the so-called ‘Latin-American model’). Levy grant, or rebate schemes, constitute incentives to employers to develop in-service training. Incentives can either take the form of reimbursement of part of the training cost, exemption of the training levy or a rebate in company tax.

According to the country, available data indicate that the rate of the levy varies from 0.5 per cent to 4 per cent of the payroll. In some cases, it also changes according to sectors of the economy and size of the enterprise’s workforce. The public sector as well as small enterprises are often exempted. The introduction, and sometimes abandonment, of a financing scheme based on payroll tax depends very much on specific considerations, such as the availability of skills and training, the overall structure and weight of the tax system, the cost of labour, and the strength of the consensus between the State, employers and the wider community regarding the necessity and use of a training levy.

The main criticism of payroll taxes lies in their inflationary effect on labour costs. This concern is particularly strong when fiscal and social levies on labour are already high. Eventually, using payroll as the basis for the training tax might have other macro-economic effects. In particular, such a system produces a distortion between labour-intensive and capital-intensive enterprises that could supposedly affect investment patterns and, in the long run, the economic structure.

These examples show that payroll taxes cannot be considered neutral as far as inflation, employment or even industrial development are concerned. The instruments selected to finance vocational education have broad implications which reach far beyond the field of training policies and outcomes.

2.5 From financing to regulation: training/funds

The introduction of payroll tax has led to the creation and wide dissemination of a new type of institution often managed by both the public and private sectors, sometimes also involving unions through a tripartite formula. These bodies or Training Funds, which collect and allocate the resources raised by the tax, combine financial and training responsibilities. In some cases, financing and promoting training are the major objectives of such institutions. In others, the Fund is incorporated into a broader Training Agency or Board which also operates its own training system, parallel to the vocational streams of the education sector, and sometimes decides upon the national training policy (Wilson, 1993). Indeed, giving the management of Training Funds to the social partners can contribute to the enhancement of the quality, relevance and flexibility of training.

The central Fund model is not the only option, and some countries have established sectoral bodies (Drake, 1991). Mostly applied in the developing world, the use of a large centralized Fund tends to redistribute training costs between training and non-training firms. Sectoral Funds can better meet the requirements of well organized sectors of the economy or facilitate dealing with specific manpower or qualification shortages.

The collectivization, or mutualization, of resources allowed by the Funds, especially central Funds, helps in the development of a collectively agreed training strategy aimed at specific types of firms, sectors, categories of workers or regions. This option can be a very powerful instrument for promoting both equity and effectiveness. In some countries, notably in Latin America and Africa, Funds have been used to implement special projects for the informal sector.

In financial terms, this redistributive function is made possible by introducing a formula, whereby individual firms have access to only one portion of their contribution to finance their own training. The balance remains accumulated in a collective account put at the disposal of the Fund to finance programmes decided upon by its governing body. It is important to note that, for many institutions, accumulated savings constitute a stabilization fund that can be used to finance capital investment or face a drop in payroll tax collection.

Usually, nation-wide Funds both levy for their own training policy and make grants to training firms. Progressively, many of them have developed their activities to provide, on a cost-recovery basis, consultancy services to enterprises in the field of human resources development. They also often play a key role in regulating the training market by introducing accreditation procedures, and quality control for private training institutions.

The diversification of services and resources represents a major trend in the current evolution of the Fund model. More and more, in addition to securing diversified finance, training Funds aim at regulating training at both the micro (enterprise) and macro (national) levels, through incentives, direct interventions and dialogue (Atchoarena; Caillods, 1995).
3. A brief review of experience

3.1 Back to the roots: Brazil

The Brazilian vocational education system: Brazil pioneered the establishment of autonomous institutions responsible for the training of the manpower required by the economy (CINTERFOR, 1991). Funded by payroll taxes and developed as distinct from the school system, this model was conceived as one of the instruments needed to face the challenges of industrialization.

The National Industrial Apprenticeship Service (SENAI) was established in 1942 to provide a qualified workforce for the developing industrial sector2. Conceived to serve the needs of the industry, SENAI is also managed, financed and operated by industry. It was established by decree but is regulated under private law.

2. A sister institution, the National Commercial Apprenticeship Service (SENAC), was later set up for the tertiary sector.
The SENAI adopted a regional structure, partly due to the size of the country and its federal nature. The National Council, headed by the President of the National Confederation of Industry, comprises representatives of various industrial sectors, as well as those of fisheries, transportation and communications, officials from both the Ministries of Education and of Labour and the Presidents of the Regional Councils. The National Department is mainly in charge of providing overall normative guidance, technical assistance and co-ordination. The Regional Councils have a pattern of membership similar to the one adopted at the national level. They are the executive arms of SENAI and operate the vocational training centres as well as provide training and related services to the enterprises. It is to be noted that workers’ organizations are not represented in the SENAI management bodies.

The SENAI’s training infrastructure embraces a great diversity of elements, including over 500 various types of vocational training centres, more than 200 mobile training units and several personnel development centres. Many of these institutions are joint ventures operated in co-operation with industry. Major training activities combine in-centre pre-employment vocational training, an apprenticeship scheme and continuing vocational education, including company-based programmes. This diversified training structure and strategy has allowed SENAI to train, since 1942, more than 10 million people. SENAI’s activities are meant to cater for the needs of the modern sector of the economy, although the importance of the informal sector is recognized.

It is argued that one of SENAI’s major assets is its close relationship to industry and its needs. Such a close linkage is largely due to the financial participation of the employers and to the design of the governing bodies of the system. However, co-operation also exists at the operational level where business representatives are very active, taking part, for instance, in curriculum development, recruiting apprentices, providing part-time instructors or by participating in the technical advisory boards of the training centres.

Financing modalities: SENAI’s financing modalities are based on a 1 per cent payroll tax paid by enterprises from the industry, transportation, communications and the fish-processing sectors. Businesses employing more than 500 workers are subject to an additional levy of 0.2 per cent. The tax is collected by the Government Agency in charge of social security, and then transferred to SENAI. Government subsidies complement the budget.

The allocation of funds is governed by the following principles. SENAI’s central administration absorbs 1 per cent of funds raised to cover related costs and further retains 15 per cent of the general contribution for its running expenditures, as well as the product of the additional tax. The balance of the general contribution (85 per cent) is transferred to the regional bodies.

The retention of funds at the central level enables SENAI to perform a redistributive function by allocating supplementary resources to disadvantaged regions, such as the Northeast, or to support priority programmes. The additional resources levied from large companies are mainly used to finance their training plans. Finally, public subsidies benefit programmes linked to government policies, such as the training of trainers or the building and equipment of new training centres.

In 1975, the revenue-raising scheme was complemented by a tax-rebate incentive. This arrangement provided training enterprises with the possibility of deducting, within an upper limit, twice the amount of their training bill from their income tax. The tax rebate was subject to the prior approval of the enterprise’s training plans. Such an option reflected a Government strategy to boost in-company training, in view of improving labour productivity. However, it was suspended in 1990 for an indefinite period, within the framework of broader orthodox fiscal measures.

The effort to promote company training led SENAI to sign specific financing agreements with large enterprises. According to these contracts, the firm that agrees is exempted from the 1 per cent levy and is allowed to retain part of the 0.2 per cent additional tax. Corresponding savings must be allocated to enterprise-based training programmes. These contracts are primarily of benefit to enterprises making significant investments in areas considered as contributing to industrial development.

Apprenticeship, managed by SENAI, constitutes another financing modality of training. It is compulsory for enterprises to employ, and enrol in SENAI centres, a number of 14 to 18 year-old apprentices ranging from an equivalent of 5 per cent to 15 per cent of their ordinary workforce. During the first half of their training, apprentices receive half the minimum wage. This income increases to two-thirds of the base salary for the second part of the learning period.

The various components of this system are meant to contribute to the development of training. While the levy, complemented by public subsidies, guarantees, under normal circumstances, a certain financial stability, the tax-rebate scheme supports the expansion of in-service training and increases the interest of employers in training. Co-financing agreements and the management of the apprenticeship system are instrumental in ensuring that SENAI remains close to the enterprises and their changing needs.

What lessons?

The evolution and the results of the Brazilian financing system provide an interesting overview of the various financial instruments and strategies used. The payroll tax has obviously contributed to the development of a strong training system, focusing on long-term training programmes. However, the allocation mechanisms have not been able to operate a redistribution of funds in a manner which significantly reduces the disparities of access between the various regions, between the size of the enterprise, and between the category of worker. In addition, the expansion of the institution is sometimes said to have generated a quasi-monopoly or, at least, given it a dominant position, which has impaired the development of a competitive training market (Leite, in Gasskov, op. cit.)

The profound crisis that Brazil faced in the early 1980s revealed the solidity of the revenue-raising scheme and its ability to adapt to a changing economic context. Adverse conditions resulted in a fall in revenue as employment and salaries fell. In constant price, the contributions collected in 1989 represented only 63 per cent of the 1980 figure. Over that period, the survival of the institution required both the reduction of expenditures and the diversification of revenues. The interest produced by surpluses accumulated in the past constituted a stabilizing income which guaranteed SENAI’s financial solvability. Developing closer links with enterprises also contributed towards supplementing the decline in the regular payroll-based income (Gomes, 1991).

The results of the tax-rebate scheme showed a significant increase in company training (2 million trainees in 1980), and the development of enterprise training centres. However, a careful analysis showed that only 1 per cent of the taxable companies took advantage of this device. The heaviness of the procedure for approval was sometimes identified as an obstacle to the system. The fiscal incentive was, in fact, taken up by the large companies from S鉶 Paulo, which used it to further consolidate their training policies. The impact on other industrial sectors and states remained limited. Therefore, the tax-rebate facility did contribute to an expansion of the training effort, but in a way that further increased the training gap between regions and categories of enterprises.

The co-financing agreements, conceived as an alternative way of developing enterprise-based training, have shown rather positive results, as indicated by a rapid increase in the number of contracts. However, this trend has also confirmed a bias towards large firms. Major agreements are signed with companies having their own training centre. The participation of smaller companies remains marginal.

In spite of its limitations (lack of competition, bias towards large companies, lack of adequate incentives), the Brazilian system demonstrated a strong capacity, in a changing labour market, to diversify its sources of income as well as its provision of services to firms. This flexibility and the close links established with enterprises are certainly the result of an appropriate mixture of institutional and financial arrangements. Administrative independence, a hybrid status combining private ownership and public mission, a management structure, including industrial and governmental representatives, probably accounted for SENAI’s achievements.

Its prestige explains the wide dissemination of the Brazilian experience all over Latin America and the Caribbean (Ducci, 1991). However, this propagation did not purely duplicate the model but adjusted it to specific conditions. Notably, most of the other institutions of the region depend upon the public sector, not on industry, and their governing body usually give predominance to ministries.

In the case of Brazil, future adjustments to the system may put more emphasis on incentive instruments, as opposed to compulsory ones, in order to facilitate an evolution of company strategies for training and, more globally, for human resources development (Gasskov, op. cit.) The bias in favour of big companies also constitutes an issue that calls for increasing attention. Finally, the non representation of labour interests might resist the evolution of social forces and the trend towards further democratization.

Government options in human resources development

More than anything else, a significant share of the Brazilian workforce remains quasi-illiterate and poorly skilled. The low education profile of the population constitutes a major obstacle to further modernization and development of the economy (Amadeo et al, in Samoff, op. cit.). A training system in itself, as sophisticated and effective as it may be, does not offer an adequate long-term response to the needs of human resources development.

3.2 Financing training in a context of rapid growth: examples from Asia and the Indian Ocean

The Republic of Korea and Singapore: State regulation of the labour market through educational and manpower development

The long-term economic performance of the Republic of Korea and of Singapore is well known. A rapid economic growth, a high level of exports and a low unemployment rate are among the signs of such achievements. Labour shortage is also one of the features of this development pattern. It is often argued that this success is, to a large extent, due to non-economic factors, such as labour market institutions and educational development. Today, in both countries, there is a renewed commitment to manpower development in an effort to move towards a greater volume of production in the area of high technology.

In both countries, technical and vocational education is based on the solid foundation of a relatively high level of attainment in general education. In Korea, the development of primary education raised the literacy rate from 22 per cent in 1945 to 90 per cent by the early 1960s. It is estimated that in the mid-1980s more than 90 per cent of young people entering the manufacturing sector had had some form of secondary education. In Singapore, the post-independence educational policy immediately focused on providing free and universal primary education and on expanding access to secondary level. Today, both countries enjoy a high level of educational development, as reflected in school enrolment rates (see Table 2).

In Korea, as in Singapore, the evolution of the educational and training system is closely linked to manpower planning and technological modernization. However, while Korea invested heavily in the development of technical and vocational education, as a sub-sector of its school system, Singapore recently chose to offer, within secondary schools, a technically oriented course, as part of general education. In the meantime, external to the school system, the Vocational and Industrial Board, renamed the Institute of Vocational Education, was restructured in order to focus on the provision of post-secondary technical and vocational education for students having completed a minimum of ten years of general education.

In Korea, vocational education is offered at the end of junior high schools. Vocational high schools’ curricula provide a combination of general education and specialization in a vocational subject. The system comprises different types of schools according to the number of skills offered. The vocational sub-sector includes a significant number of private schools. The Ministry of Education lays down and controls standards in both public and private institutions.

School budgetary allocations are made by the Ministry of Education through local Boards of Education. Tuition fees, as well as other contributions made by parents’ and teachers’ associations, also partly contribute to the financing structure. In response to the Ministry’s control over fees charged, private schools are entitled to Government subsidies. In this context, the private sector is clearly viewed as complementing the supply of vocational education so that social demand can be met In order to preserve the interest of the lower income groups, targeted financial assistance is made in the form of scholarships and fee exemptions.

The Government plans foresee the significant development of technical education. Long-term development aims at achieving, by the year 2000, a 50/50 enrolment ratio in vocational and general high schools.

Besides the vocational education stream, Korea also operates a vocational training system. Vocational training institutes are said to provide a more narrowly-based skill training to school leavers. Korea’s effort to implement a manpower development framework dates back to 1967 when the Vocational Training Act was passed. In addition to public institutions, the Korean training system also comprises private vocational training institutes and in-plant training centres.

The administration of public vocational training institutions is co-ordinated by the Korea Manpower Agency (KOMA). The bulk of the cost of training in KOMA centres is met by Government. While large companies invest in well-funded training centres providing in-plant training, small enterprises rely on public sector institutions.

The majority of vocational training is provided by the private sector. A recent trend has emphasized this distribution pattern, reflecting the Government policy to increase private sector responsibility, in view of fostering a more demand-driven system.

In spite of the size and strength of technical and vocational education and training, certain critics question the content of the programmes. It has been argued that employers and workers do not fully recognize the relevance of technical education for industrial jobs (You, in Rodgers, 1994).

Apart from meeting the needs of industry, the massive supply of qualified manpower produced by Korean vocational education and training systems may have contributed to maintaining the salary rate at a moderate level. The stable supply of qualified and relatively cheap labour is considered to be a major factor in the economy’s success (Park, in Rodgers, op. cit).

In Singapore, under the restructured scheme, vocational training became the major mode of pre-employment skill development (Cheung, 1994). The Institute of Technical Education (ITE), responsible for the overall training system, is a tripartite body with a board which includes the Government, employers and trade unions.

Through its training institutes, the ITE provides pre-employment training to secondary school leavers. On average, admission represents about 25 per cent of the school cohort. Besides full-time institutional training, ITE operates an apprenticeship scheme which was upgraded and expanded in 1990.

The promotion of continuing education also forms part of the ITE’s missions. In so doing, it has implemented various schemes aimed at upgrading the education and skills of the workforce. Hence, in addition to vocational courses, continuing education and training centres provide part-time evening and weekend academic classes. In 1981, ITE also introduced its Approved Training Centres scheme, whereby industries are encouraged to set up their own facilities.

Finally, ITE has also developed a skill-certification system to encourage skill formation and to improve information on the market for skilled labour.

Within this overall framework, Singapore’s vocational education system is mainly financed by the Government. The ITE’s operating budget represents approximately 6 per cent of the total educational expenditure.

Parallel to the development of a vocational education system, mainly school-based in Korea, and external to the education sector in Singapore, both countries have set up various incentive or compulsory mechanisms to promote training in industry. In the mid-seventies, Korea introduced compulsory training requirements (Lee, 1985). Under this scheme, firms with over 300 employees (later reduced to 150) had to train a certain percentage of their workforce, defined for each industry by the Ministry of Labour. In 1976, a training levy was introduced as a penalty for firms that did not comply with the mandatory training requirements. A Vocational Promotion Fund was set up to manage the resources raised by the levy. In contrast to the experience of many other countries, the levy was initially determined annually on the basis of the estimated training cost in each industry (25 per cent of the cost initially, later increased to 75 per cent). The Fund operates under the sole authority of Government, through the Ministry of Labour. Its resources contribute to public vocational training programmes and to the development of in-plant training centres. Levy-based funds are now focused on upgrading public training institutions.

In the past, the Korean levy system has not proved to be particularly effective in promoting in-plant training. Although it is said to have contributed, during the 1970s, to fast industrial development, a sharp decline in the number of trainees during the 1980s raised Government concern. This downward trend was largely attributed to the heaviness of the procedure involved in getting training plans approved, as well as in the calculation of cost data required by the initial system. It is argued that, while the levy did not make much difference to the already strong motivation of the large companies to invest in training, it failed to have an impact upon small enterprises. They end up preferring to pay the levy and relying on graduates or on poaching. In this respect, the levy seems to have been considered as another tax. Such results raised some doubts about the relevance of the state-led manpower development policy and instruments. Under-investment in training by enterprises is considered to have contributed to skilled labour shortages in the 1980s. This phenomenon may further be aggravated by the reluctance of young people to choose industrial occupations (Baek, in Gasskov, op. cit.).

In spite of the limitations of Government policy, massive and early investment in human capital through educational development may have contributed to an acceleration of the economic growth rate, as announced in the recent theories of endogenous growth.

In Singapore, a Skills Development Fund was established in 1979 to promote in-plant training. The financial instruments associated with such a policy include a payroll tax and incentives to training firms. The originality of the Singaporean system lies in the fact that a levy was made only on the lower waged workers. Initially, the levy rate was 2 per cent. In 1980, it was increased to 4 per cent. Subsequently, a decision was made to restore the 2 per cent rate (1985), and then to decrease it to 1 per cent. Accordingly, in 1986, the definition of low wage was inflated to reflect changing economic conditions.

Using the low skilled employees’ payroll as a basis upon which to set the levy originally formed part of a broader government industrial strategy to restructure the economy towards a more capital-intensive production system.

In its effort to support company training, the Fund provides grants on the basis of approved training plans. It also promotes special training programmes focusing on the upgrading of workers’ skills.

Although the increase in company-based training programmes has been significant, the Fund experiences difficulties in transforming employers’ attitudes towards training. Small enterprises and low skilled workers still constitute largely unreached targets. The bureaucratic procedure which is required for grant applications is considered to be one of the obstacles to a more equitable expansion of grants awarded. In the meantime, requests are being made to introduce levy exemptions for some categories of firms. These issues may lead to a further refining of the financial scheme supporting industrial training.

Meanwhile, Singapore provides an interesting experience in the linking of educational and manpower development policies. The 1992 reform, by delaying vocational education so that it followed on after a minimum of ten years of general education, reflected an effort to produce easily retrainable graduates, with a wider educational background. The choice of an out-of-school tripartite institutional framework also indicated a search for more flexibility and partnership. This overall policy and organizational shift corresponds to an effort to move towards a more capital and technology-intensive production.

Training in the transformation of a plantation economy: Mauritius

In the 1960s, Mauritius was the archetype of a small island plantation economy, dominated by the sugar industry. Twenty years later, as a result of export-oriented manufacturing together with tourism, a major structural transformation of the economy had been achieved, leading to full employment. Inspired as it was by high performing Asian economies, the island’s industrialization strategy was based on macro-economic stability, the dynamism of the business community, low salaries, and on a literate and increasingly skilled labour force.

Rapid modernization, however, has led to pressure on wages and labour shortages, while changing international conditions have threatened the traditional export market. The emerging context has required increased competitiveness and a sustained investment in human resources development. Education and training are the key elements in the government’s strategy to catch up with the best practice in international technology. In order to guide educational development up to the year 2000, the Ministry of Education has prepared, in close consultation with all domestic sectors and the international community, an Education Sector Master Plan.

In spite of a relatively rapid educational progress since independence, as reflected in universal primary education, the educational profile of the labour force still requires upgrading. For instance, it is estimated that only about half the workforce has attained secondary level, as compared to approximately 70 per cent and 90 per cent respectively in Singapore and Korea.

Limited access to secondary education - of an unsatisfactory quality -its low level of efficiency, together with an excessive emphasis on examinations, are some of the issues faced by the Mauritius education system. Indeed, it is felt that many vocational programme applicants are inadequately prepared academically.

As in Singapore, the development of vocational education and training is mainly the responsibility of a specific institution, external to the school system. The Industrial and Vocational Training Board (IVTB) was set up in 1988 as a bipartite parastatal body, associating both public and private sectors. The IVTB is responsible for promoting, co-ordinating, financing and providing training to school leavers, as well as to the existing work-force (Munbodh, 1995).

Until 1991, the IVTB was under the direct responsibility of the Prime Minister. It now operates under the responsibility of the Ministry of Manpower Resources and Vocational and Technical Training. Applying the principle of partnership, the IVTB governing council provides a balance between the private and public sector. However, the act regulating the institution provides that the Chairman of the council shall be appointed by the Prime Minister, while the Vice-Chairman is designated in consultation with the Mauritius Employers’ Federation. Concern has sometimes been voiced about the non-representation of labour interests. It seems that the possible evolution of the governing structure remains subject to an improved working agreement between the different parties and would require an assessment of the potential contribution of workers’ representatives.

The IVTB operates training centres focusing on areas considered as inadequately covered by enterprises or private institutions. A major target group for long-term programmes are school leavers with a minimum of 2 years of secondary education and who are at least 15 years-old.

In recent years, the IVTB has started to provide pre-training programmes for pupils having completed primary education. This scheme was implemented as a partial response to a growing demand for an alternative to scarce secondary education places. Providing this type of remedial education also reflected the IVTB’s concern for the inadequate academic preparation of applicants due to the unsatisfactory quality of basic education. However, the IVTB’s pre-vocational training centres were conceived as part of a transitional policy. The implementation of the Education Master Plan makes provision for a gradual transfer of this responsibility back to the Ministry of Education, within the framework of the newly established basic secondary schools.

The IVTB also operates a still modest apprenticeship system, inspired by the German dual model. The apprentices spend about one and a half days per week in a training centre, the rest of the time being devoted to on-the-job training supervized by the enterprise.

Besides initial training, short-term courses are being organized for employed workers. Most of them are attended by enterprise-sponsored trainees.

Contributing to more transparency of the labour market through the greater availability of relevant information, and the establishing of a market for training, form part of the IVTB’s responsibilities. It is with this in mind that the Board is developing a National Trade Certification System leading to the official recognition of the various levels and types of skills. In addition, the accreditation of private training centres and trainers contributes towards monitoring the quality of private training and to improving information on the supply side. As a part of this accreditation policy, the IVTB publishes a directory of registered training institutions and trainers. Together with the establishment of a training Board, Mauritius has revised the financing of training. The current mechanism combines a payroll tax together with incentive schemes.

The training levy was defined as a 1 per cent tax on the basic salary of all employees, excluding household workers, to be paid by all employers into a Fund managed by the IVTB. The tax is collected by the National Pension Fund.

The levy contributes towards covering 50 per cent of the IVTB’s recurrent expenditures and 15 per cent of its capital investment, the balance being provided by Government.

In order to promote in-plant training, the legislation makes provision for a mixed system, combining a training grant and a tax rebate. Subject to prior approval of training plans, employers are entitled to a grant as well as to a rebate on taxable profit, which is equivalent to twice the investment made in training. According to this system, the employers can recuperate up to 75 per cent of the total training cost. The difference is absorbed by the State (through the tax rebate) and by the IVTB, through reimbursement. As the corporate tax is regulated by a multiple rate regime, the determination of grant allocations varies.

Altogether the IVTB income originates in five major sources: the training levy. Government subsidies, loans and grants, interest on financial reserves, and fees. In addition, the IVTB training centres are required to generate part of their recurrent expenditures through fees and sales of products or services. The implementation of this cost-recovery policy gave contrasting results. Hence, it is estimated that in 1994, institutions earned between 6 to 30 per cent of their recurrent expenditures.

Over the years, the surplus of income over expenditure has generated important reserves. Such accumulated resources constitute a security for the Board in case of a possible reduction in government support or to enable it to maintain and update training facilities. This financial pattern is mainly due to the slow expansion of the grant scheme, many employers not having immediately taken advantage of the incentive provided by the reimbursement scheme. It is expected, assuming a more positive attitude on the part of the employers towards training, that the future development of the system will introduce a shift from the revenue-raising component to the grant incentive. This trend would eventually lead to a decline in financial surpluses.

As the IVTB is still in a preliminary phase of its development, it is too early to assess its impact. Introducing the levy and combining this resource with Government money has obviously constituted a sound financial base upon which to establish and expand the training system. At the same time, the increase in grant applications reflects the growing interest of companies in training. However, as has been observed in other similar systems, the processing of grant applications represents a substantial amount of work, sometimes leading to detrimental delays.

In the years to come, it is likely that the continuation of the trend observed for the grant incentive will require a review of the existing financing formula, In any case, such a revision will soon be necessary as it is intended that the present three-rate corporate tax structure be replaced by a single-rate regime.

As the employers have indicated their reluctance to an increase in the tax rate, one of the avenues towards broadening the income-base might lie in the diversification of resources. In particular, the IVTB could be led to expand, on a cost-recovery basis, the range of services it provides to enterprises.

One of the issues regarding the future development of the IVTB’s activities and funding concerns Government plans to further develop technical education. In 1990, a specific body, the Management Trust Fund, was established to promote technical education. Management of the institution is ensured by a board of trustees consisting of representatives from public and private sectors, the Chairman being appointed by the Minister of Education. Financing of the Fund is also ensured by the Ministry of Education.

The Fund, which was mainly responsible for the sole lyc閑 polytechnique, will be in charge of two new technical (polytechnic) institutions, designed to develop the education of technicians. Although polytechnic education, inspired by the Singaporean model, is meant to be vocational, its future development will require careful monitoring. In particular, its capacity to address the economy’s requirements for technicians, as opposed to becoming a stepping stone to an engineering degree, remains to be seen.

Finally, in order to obtain an adequate return on the overall vocational education and training investment, a strengthening of the linkages between the IVTB and the Management Trust Fund will be necessary. Furthermore, progress in training needs to be accompanied by a significant improvement in the internal efficiency and quality of basic education. This surely represents a crucial prerequisite in order to succeed in the establishment of the standards required by a high performing economy.

4. Conclusions and further thoughts

4.1 The rationale in brief

It is widely felt that investing in technical and vocational education and training contributes to economic growth, as reflected in the above country examples. In particular, this form of human capital formation supposedly facilitates technological change and international competitiveness.

At the same time, and in spite of the absence of clear statistical evidence, there is a feeling that societies underinvest in training. This attitude is suspected to be widespread in industry, where individual enterprises often tend to prefer poaching skilled workers.

Such so-called ‘market failures’ require public intervention, although there is strong international support in favour of the allocation of resources through market forces (World Bank, 1991). The issue then becomes to determine how governments can best design financing policies in order to improve the efficiency and effectiveness of technical education and training. Specific aspects concern the possibility of defining appropriate cost-sharing arrangements and ways of conceiving effective incentive structures.

4.2 Major trends

In spite of their wide economic, social and cultural differences, the countries selected here illustrate some of the major trends affecting the financing of technical and vocational education and training systems worldwide. Based on the material previously reviewed, at least four of the above can be identified:

(a) Financial diversification

This trend is observed in most countries, reflecting either an effort to shift financing towards a more market-driven pattern or to change workers’ and employers’ attitude, as reflected in the case studies. This strategy also frequently corresponds to a forced adjustment to shrinking public budgets (Brazil). The introduction of fees and the use of general or earmarked taxation represent various possible market, state or collaborative instruments to diversify resources. The examples show that there is no pure model, and that financing systems fluctuate from state to market regulation over a period of time within a specific country. The need and/or the wish to diversify finances forms one of the main reasons for such fluctuations.

Foreign aid, through grants and loans, also constitutes, in many countries, like in the Ce d’Ivoire and Mauritius, a significant element in the initial support of the gradual restructuring of national financing systems.

(b) The establishment of training funds

The performance of Korea and Singapore in regulating labour markets cannot be attributed to efficient market mechanisms. In trying to understand these successes, increasing interest is being paid to the role played by specific social institutions. Among these. Training Funds and Boards deserve special attention, especially when assuming that skill development is a precondition for sustained growth.

In most selected examples, the financing system relies on a Fund, sometimes incorporated within a broader Board, which plays a central role in the allocation of resources, partly raised by a payroll tax. This institutional arrangement is currently in place, or being considered, in many developing countries. The case studies indicate that such an institution can constitute a useful interface between the different enterprises and the training system. It also plays a key role in correcting market imbalances in training access.

It is possible to identify three functions performed by Training Funds: banking, mutual funding and insurance. As in a bank, enterprises can withdraw from their account funds required to cover their training expenditures: this constitutes the basic function of Training funds. The redistributive function, present in many systems, made possible by the constitution of mutual funds, contributes towards tackling the needs of disadvantaged workers, enterprises or regions (Brazil, Ce d’Ivoire, Singapore). Finally, enterprises facing sudden technological change may be able to benefit from the Funds’ accumulated savings to finance emergency training programmes. To this extent, the payroll tax can represent a form of mandatory savings account, which can offer additional protection to enterprises requiring greater training-related financial support at certain stages of their development.

Over and above administrative and financial aspects, the shaping of National training funds is the result of a complex mixture of economic, social and political forces. Such diversity is fully reflected in the institutions set up in Brazil, Korea, Singapore, Mauritius and Ce d’Ivoire. A major difference can be distinguished between institutions of a purely financial nature (FDFP) and those also involved in training provision (SENAI, ITE, IVTB). Another distinction can be made between mandatory but privately managed Funds (Brazil) and publicly managed earmarked tax funded bodies (Korea, Singapore, Mauritius, Ce d’Ivoire). However, while the precise nature of these institutions varies, they perform everywhere a decisive role in allocating resources for training. The extent to which Funds contribute to the effectiveness and efficiency of training provision remains, however, to be seen.

(c) The diversification of services provided by the training funds

As indicated in the examples of SENAI, ITE, IVTB or FDFP, financing, and sometimes training delivery, only represent part of the Funds’ activities. Increasingly, they perform other services, such as labour market analysis, the certification of skills, accreditation of private training institutions or providing advisory services to enterprises.

Developing a formal system for the recognition and certification of skills contributes to the greater availability of relevant information concerning the labour market. Similarly, supporting and monitoring the establishment of a market for training introduce a demand-driven mechanism for training provision.

Some of these functions are implemented on a cost-recovery basis and have thus contributed to broadening the financial resources of training institutions. Furthermore, it is often argued that cost-sharing arrangements increase the flexibility and responsiveness of the training system by building closer relationships between institutions and enterprises.

(d) The emergence of the concept of partnership

Getting together all the institutions involved in the decisions that affect them is increasingly considered an efficient approach towards improving the functioning of training systems. Participation of stakeholders means giving them the institutional capacity to influence policy making and management as well as to control activities and resources.

Reforming the financing mechanisms must be seen against the broader context of redefining the responsibilities of the main economic agents vis-a-vis technical and vocational education and training systems. Over and above the financial participation of employers by way of the payroll tax and fiscal incentives, public policies also reflect an effort to modify the role of the state in training and to achieve a new social contract between the different partners involved. In this respect. Training Funds or Boards represent an important locus in forging an agreement between the State, employers and individuals regarding policy issues as well as their respective role in training. Complementary trends concern the participation of local governments and NGOs, especially in the context of decentralization and territorial development policies.

Finally, the challenge of partnership is to ensure that the main actors involved in the productive sector are committed to the principle of investing in human capital formation, and acknowledge its importance for development.

However, partnership does present some costs and risks. Participation and dialogue involve time. In practice, partnership often slows down the decision-making process. A kind of trade-off occurs between the adoption of a participatory approach and being able to make fast decisions. Short-term management objectives may favour the handiness of the system, while a sustainable training strategy would require the sharing of control.

Increasing the number of actors involved is also subject to cultural and political limitations. In some cases, labour representatives may be perceived as threats. Therefore, although often praised, increased partnership still encounters much resistance.

4.3 Variables affecting funding scheme options

National training systems and their financing are the product of specific historical developments. Therefore, the appropriate mixture of instruments will not be the same at all times and all places. It depends on many factors, including a country’s administrative culture and current circumstances. Among more specific variables affecting the funding formula, the following six deserve particular attention:

(a) The structure and the size of the economy

The level of economic development constitutes a major constraint for the financing system. In particular, the extent to which the State can share the cost of training with other partners is directly linked to the structure of the economy. If the possibilities of introducing and operating a payroll tax funded system are high in middle-income and high-income countries, it may be more problematic in a low-income economy. Below a certain scale the benefits of the levy-based system are necessarily limited due to the impossibility of initiating an accumulation process.

In this respect, it must be underlined that the payroll-tax system is tailored to address the needs of a modern economy. Its capacity to consolidate skills in the informal sector is minimal.

(b) The economic policy

The role of the State in the economy has an influence on financing policies. Financial diversification corresponds to an era dominated by a global shift to a market economy. In many countries, such a predominant strategy also forms part of a broader response to an unprecedented fiscal crisis.

However, under certain circumstances, financing strategies for training may contradict economic policies. It is notably the case in the use of payroll taxes in a context of fiscal austerity. Indeed, taxation becomes a sensitive issue in a process of economic liberalization, when resource allocation is increasingly meant to be driven by market signals. Facing the pressure for more fiscal orthodoxy, the use of payroll tax, as compared to general taxation, can appear questionable.

(c) The maturity of social partners vis-?vis training

The performance of a given financing system will very much depend on the attitude of individuals and employers regarding training. For instance, the case of Korea illustrates the difficulty faced by an incentive structure when individual employers are not always convinced of the need to invest in training and sometimes prefer poaching skilled workers (You, in Rodgers, op. cit.). Similarly, providing incentives to individuals also necessitates access to relevant information on training options, costs and returns.

Therefore, the reform of the financing system requires, as much as possible, a wide consensus between all of the partners involved: government, employers, workers, students, parents, public training institutions and the public at large.

The introduction of a payroll levy may be viewed by employers as just another tax. Making them aware of the associated incentives and of the potential impact of training on labour productivity may call for intensive and long periods of consultation. In Cte d’Ivoire, the preparatory work was initiated three years before the actual introduction of the payroll tax.

Introducing fees often requires similar preparatory work in order to convince individuals, and sometimes heads of institutions, that cost-sharing is necessary and, under certain conditions, equitable.

Incentive structures for investing in training are based upon the assumption that the willingness and strategy of firms and individuals depend largely on the cost factor. This statement may be challenged. When making investment decisions in training, enterprises may take into account a number of elements, including the business cycle, technological change and also industrial relations.

Nevertheless, reforming the financing system certainly constitutes a way of changing the attitude of the various actors. In many countries (Cte d’Ivoire, Mauritius, Singapore), medium- or long-term perspectives reflect a clear evolution of investment strategies in training, much of it probably resulting from the implementation of financial instruments. Reforming the financing principles can therefore also be part of a proactive long-term government strategy.

(d) The state of relationships between the partners involved

Highly conflicting situations are hardly conducive to positive dialogue. They are more likely to lead to hostile confrontation. It is obviously difficult to manage a training system under such conditions. A pragmatic approach to this problem might mean the exclusion of certain parties from the governing body of the Funds (Brazil, Korea, Mauritius).

It could also be argued that the full participation of the social partners in labour institutions, including Training Funds, can contribute to the collective organization of the various parties and later facilitate training-policy dialogue with government. Current developments taking place in some African countries (Benin, Mali) seem to follow this rationale. Their full effect remains to be seen.

(e) Institutional capacity to enforce, manage and control the system

In order to be effective, financial diversification policies must benefit from a strong institutional framework. This is especially the case for payroll tax that requires a reliable administrative machinery to ensure that tax recovery is effective. Payroll taxes are usually collected by the Income Tax Department of the Ministry of Finance, together with other company taxes, or by the national insurance scheme, which already raises social contributions. In both cases, a sound institutional capacity to collect an additional tax is required.

The performance of a Training Fund depends in part on its administrative cost. The selected experiences indicate that the operation of a tax rebate or reimbursement schemes requires extensive processing for grant or exemption applications. Often, malfunctioning bureaucracy leads to delayed payment and to a loss of confidence in the system (Cte d’Ivoire).

Regulating the training market by issuing accreditation to private institutions (Cte d’Ivoire, Mauritius) also implies some sort of bureaucracy. Government control of standards and outcomes is required to ensure that public funds are used in conformity with their initial objective.

In reality, the true administrative cost is practically never measured. Hence, costs incurred by collecting taxes are not accounted for, the job being done by the Ministry of Finance or the national insurance or pension scheme.

Depending on the magnitude of economies of scale, the average cost would be relatively lower for large systems, given the number of contributing enterprises. In small, low-income countries, lacking strong taxing and regulatory capabilities, a simple financing system would minimise collection, record-keeping, pay-out and other administrative costs.

Although it would be harmful to establish a link between legal status and administrative efficiency, experience has shown that, in certain environments, publicly managed Funds run a higher risk of encouraging wasteful spending (e.g. ONFP, Cte d’Ivoire).

(f) The objectives of the financing system

The objective can be either to raise funds for training or to change attitudes. In some cases, objectives go beyond the training issue to affect further dimensions, such as the choice of technology (Singapore).

A distinction can be made between the systems based upon compulsory requirements and those using incentive instruments. The review of objectives and instruments provides an interesting feature of national financing systems:

Table 3. Major features of selected financing system

Objective Instrument	Promote company-based training	Build up a training system	Influence enterprises’ labour policies	Regulate the training market
Compulsory requirements	· Republic of Korea	· Brazil · Singapore · Mauritius	-	· Mauritius · Cte d’Ivoire
Incentives	· Brazil · Mauritius · Cte d’Ivoire	-	· Singapore	· Mauritius · Cte d’Ivoire

Incentive structures are based on a tax rebate (Brazil, Mauritius) or a training grant (Mauritius, Cte d’Ivoire). Compulsory instruments usually take the form of a payroll tax; less frequent is the enforcement of a quota for training (Korea).

Government resources are usually used to finance a public system for technical education or vocational initial and continuing training (Korea, Singapore, Mauritius, Cte d’Ivoire). They are also used to support programmes designed for disadvantaged groups (Brazil, Cte d’Ivoire).

Over and above these specific objectives, training systems, and their financing, can be considered within a macro-economic and educational perspective. For instance, financing training can be part of a public policy aimed at reducing investors’ risks. It is notably the case in export-oriented countries operating with a long-term vision, such as Singapore or Mauritius. In such cases, training serves broader industrial policy goals involving, besides incentive instruments, substantial State financing to develop certain skills and establish powerful publicly financed training institutions.

In another context, heavy investments in training can be viewed as an effort to compensate for the low quality of basic education (Brazil).

4.4 Issues for debate
How to prevent the diversion of resources?

Training funds, especially when they enjoy substantial financial surpluses (Cte d’Ivoire, Mauritius, Singapore), constitute a hidden and exclusive source of income. As such, they represent a tempting prey for a government budget under pressure, especially when they are publicly managed. Past experience in Cte d’Ivoire provides clear evidence of that risk. A relevant response might be to enforce by law the Fund’s autonomy and thus reduce the control of the government’s Income Tax Department over the resources collected. However, it is difficult to fully prevent such a crisis, especially when the government is faced with growing budgetary constraints.

Part of the problem lies in the dualistic nature of payroll taxes. Their fiscal origin justifies considering them as public money. Yet, their earmarked destination and the fact that they are being paid and partly managed by employers tend to lead to their assimilation as private funds.

As the concept of earmarked taxation is alien to orthodox fiscal doctrine and often contradictory to fundamental public finance principles, it is difficult to establish legitimately a complete separation between pay-roll-generated income and the State budget In many African countries, this partly explains why the apprenticeship tax is, in fact, never used to finance training but allocated to other, less clearly defined purposes.

Training versus employment?

Although macro-economic empirical evidence is still lacking for training levies, common sense tells us that high payroll taxes mean fewer jobs. In some countries, like Brazil, taxes for pensions are already over 25 per cent of gross wages. Adding additional taxation to this already massive burden cannot be considered as an incentive for creating employment. This problem is found in industrial and developing countries alike.

Furthermore, it is argued that the growth of the informal sector labour force is partly due to excessive payroll taxes. Hence, evasion not only undermines the sustainability of the financing system but also affects the structure and competitiveness of the economy, labour productivity being usually lower in the informal sector.

Does financing training help the poor?

Heavy investments in technical and vocational education and training often correspond to a policy for democratizing education and broadening training opportunities. In addition to expanding secondary education by developing vocational tracks, or providing alternative, non-formal forms of education, this policy has also led to compensatory government programmes. These schemes, sometimes supported by industry, are aimed at disadvantaged groups in the labour markets. Early school dropouts, minorities, and informal sector workers, often form part of these targeted populations. Such training schemes also constitute an important component of poverty-alleviation policies or ‘active’ labour-market programmes.

The rationale inspiring these policies seems sound against a background of high structural unemployment: providing the jobless with the skills required by the economy should improve the labour market situation. Similarly, if one accepts that wages are linked to labour productivity, to train people for qualified jobs should contribute to reducing poverty.

In reality, the results of these policies are mixed, and often disappointing, especially in periods of high unemployment. Can, and should, governments really finance training on a large scale in order to address efficiently the issues of unemployment and poverty? In spite of the fact that there is little empirical evidence to support such intervention, such questions remain open. Some argue that, taking into account the high cost of training, social objectives and equity would be better addressed by improving the overall educational level of the population through increased investment in basic and general education (Carnoy, 1994). Improving the ‘trainability’ of people through higher quality education would eventually diminish training costs, especially as the science and technology content of general education is on the increase (Caillods; Gttelmann-Duret; Lewin; forthcoming).

Financing training revisited: is the classical cost-sharing pattern still valid?

It seemed fair to consider that enterprises should contribute towards the direct financing of work-related education and training. This basic demarcation between general education, on one side, and technical and vocational education and training, on the other, has long served, with some variations, as the guiding mark in defining financing responsibilities and mechanisms.

While general education increasingly includes technological contents, the requirement of vocational skills tends to become less applicable to specific, narrowly defined, occupations. The use of similar technologies across a variety of sectors constitutes a major factor explaining this shift away from job-specific abilities. In addition, the progressive transformation of work organization, relying less on the principles of Taylorism than it used to, increasingly involves workers in process improvement and quality control. Although this trend may be mainly affecting capital and knowledge-intensive industries, it already has a strong impact on the way skill formation and industrial learning are being addressed, and financed.

In the long run, the continuation of this tendency, and its dissemination to an increasing number of countries, as a result of intense international competition, may require reconsidering the concept of technical and vocational education and, therefore, reassessing the premises underlying the classical financing paradigm.

Back Cover

As part of IIEP ‘s programme of co-operation with other organizations, the Institute’s staff are frequently invited to present papers at conferences, seminars and workshops organized by these organizations or to submit articles to specialized Journals.

The series of IIEP CONTRIBUTIONS, which includes a selection of these papers and articles, is designed to ensure that such writings - often basically of ephemeral value - are disseminated widely and quickly

IIEP Contributions No. 24 The financing of vocational education has become a major issue for many governments, and in certain countries, for industries. This is due not only to unfavourable economic and financial conditions but also to the attempt to be both cost-effective and internationally competitive. In some countries, the introduction of economic adjustments and stabilization policies have seriously affected education financing policies. Faced with the need to reduce costs, some governments have had recourse to drastic measures aimed at minimizing expenditure and transferring costs. This orthodox pattern of public spending has also affected vocational education. The financial support for general secondary education is considered a priority, in fostering flexibility, increasing trainability and achieving equity. In situations of financial constraints, vocational education is expected to provide clear evidence of economic and social returns. It is within this context that the debate on financing is taking place. This booklet reviews the main issues by focusing on the experiences of some countries and showing how they have addressed this crucial issue. It also highlights and analyzes different types of strategies and instruments in financing vocational education.

The author

David Atchoarena is a Programme Specialist at the International Institute for Educational Planning (IIEP), UNESCO, Paris. He is the author of several publications in the field of vocational and technical training, and the editor of Lifelong education in selected industrialized countries (IIEP/UNESCO, 1995).