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Eureka: Deregulation and overregulation in business
by Joseph Gatt
2018-07-26 07:01:57
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In this short article I will discuss two cases studies of how regulations hurt a certain market. First, I will discuss the evolution of the language teaching market in South Korea, then I will discuss the evolution of the language teaching market in Algeria.

Case number 1: Language school market in South Korea

Up until 1984, there were no real regulations in the language school market in South Korea. This was when there were few language schools and few foreign teachers. Foreign teachers used to stay at hostels where there was a bulletin board that would advertise English and French teaching positions and translation work opportunities from English to French.

busi001_400Backpackers used to work for several schools and do a few translation gigs, that were often well paid. Some teachers claimed to make as much as 5 or 6 thousand dollars a month teaching and translating. Back then you could quit your job whenever you felt like it and take up other jobs, there were no minimum wages and employers had few obligations. Teachers would teach at a university in the morning, at a language school in the afternoon and would teach private lessons in the evening, and those who speak French would do translation work before going to bed.

Now in South Korea, a country where your college degrees and salary determines your rank, there was a little bit of irritation over the fact that many of those freelance teachers were making a lot of money and marrying rich people's daughters (a vast majority of teachers were men). Furthermore the government felt that there was a growing gap between the rich and the poor, as the rich could afford language teachers and private tutors while the poor could not. So the government banned private lessons, forced teachers to have at least an Associate's degree and forced teachers to stick to one single employer.

In pure economic terms this was depriving the country of a couple of GDP points. There was a demand for private tutoring, for translation, and employers did not mind teachers working for several employers. The employers were happy, students were happy and teachers were happy. Employers paid teachers who spent their money and helped the GDP grow.

Up until the late 1990s, anyone could teach languages in South Korea if they had an Associate's degree. There was no strict enforcement of the law, and most teachers taught under the table with tourist visas, going back and forth to Japan to renew their tourist visas. A whole parallel economy started catering to those teachers, as in pubs, pizza parlors, clubs, associations and other economic activities that catered to those teachers. Teachers were notorious for spending their paychecks on beer and other alcoholic drinks.

Then one day, two Estonian teachers were caught teaching English at a school, and the Estonians apparently did not speak a word of English. This is when the government decided that only those from a select seven countries could teach English in South Korea. If you qualified to be a member of the KKK, you qualified to teach English in South Korea. That's basically how I understand that law.

Then the government decided to enforce health insurance, pension and severance pay laws, and that market started showing its dark side. Before those laws were enforced, teachers were paid in cash, daily, weekly or monthly, had to get their own health insurance and had no bonuses, severance pay or retirement pension schemes. Now that they had all those, a lot of employers were reluctant to hire teachers, a lot of them hired teachers under the table, and for those who hired teachers legally they would drive teachers crazy ten months into their contract and hope the teacher either quits or has a nervous breakdown by the eleventh month. This is because after twelve months teachers would receive their severance pay bonus.

Then the government started asking for criminal background checks and all kinds of other documents. Now when there were no regulations, teachers were their own boss. They would try out this teaching thing, if it wasn't for them, they would move on to something else. If they liked teaching, they would go on teaching. With the new regulations, teachers were basically bound to a one-year term of office, and if they found out teaching wasn't for them, or that their employers were denying pay or were being obnoxious, they still had to stay on the job.

So to sum up, without regulations, teachers would try out this teaching thing, and if they liked it, they would keep being promoted to better and better jobs until they settled for an ideal job. The market would also shape itself, catering to the different types of teachers available. With regulations, or with overregulation, employers are stuck with teachers they might not like, students are stuck with teachers they might not like, teachers are stuck with employers or students they don't like, and the government is stuck with teachers who are very vocal about their anger, and that's not good for the image of the country. The same could be said about most Korean companies that have rigid hiring requirements. Employers are not happy, workers are not happy, clients are not happy, and people are angry, which shows up in the media.

Case number 2: the unregulated language teaching market of Algeria

In business you need three things. You need knowledge, you need a network, and you need to be a skilled salesman. In Algeria, people open language schools the same way they would open a pizza parlor. They rent land, buy furniture, chairs, tables, whiteboard, pens, and then they advertise that they teach every language in the world, and if there's a demand for the language, they start looking for teachers and can't find the teachers.

The problem in Algeria's language learning market's case is that there is no demand for language learning. There's an oversupply of language schools and teachers, and a very low demand from students. That's when you have schools built as language schools suddenly try their luck with becoming computer literacy schools or sales schools or self-improvement schools or in some cases even offer medical and paramedical training, for which there is no demand.

Why is there no demand for language learning? Because teachers are not native speakers. So should the government intervene? Language schools often start off with government loans, spend a fortune on equipment, offer every class and lesson you can think of, students don't show up, and bam, the school is gone. I don't think the government should intervene. But I think the media should play its role, that of saying the truth, the truth being that you're wasting time and lots of money by starting language schools.

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