Cram-school grey market: Siphoning off funds for schools

The costs exacted by high-stakes exams in national education systems frequently include substantial fees for tutoring and test preparation. If you look at these fees in terms of market economics, you might conclude that public education is "under-priced": there are potential revenues (OK, taxes and fees) that instead of being collected go to private-sector providers. A case in point...

South Korea is attempting to crack down on private test-prep services. Bounty hunters, known as the "hak-paparazzi" because they are busting "hakwon" or test-prep schools, earn payments when they deliver evidence that a specific hakwon is charging prices that are higher than those the government allows. The government controls prices and pays bounties as part of a program to:

...tame the ballooning cost of private education—a particular burden for citizens in a country laser-focused on education achievement.

By "private education," in this instance, we're talking about cram schools. These schools are offering, essentially, supplementary education services intended to improve clients' performance on high-stakes tests.

My elementary grasp of economics, however, suggests that there are a few other conclusions that can and should be drawn in societies where high-cost tutoring emerges to meet the need for test preparation.

• Demand for effective (i.e., career-advancing) education is high
• Supply of same is low
• The additional funds spent on education would be more beneficial if they were re-directed to public schools

Why the last? Because private test-preparation runs precisely counter to implied goals of high-stakes tests. Those tests serve, at their most benign, as a mechanism for allocating scarce resources comprising the opportunity to continue on to higher education (or in lower grades, to continue on an academic track rather than being routed to TVET). Students who perform well on tests are rewarded with better placement. From the point of view of a national social and economic system, accurate placement entails correctly predicting those students who will succeed academically and in later life. 

Test-prep services, especially when they are priced beyond the means of most citizens, distort the functioning of tests as mechanisms for resource allocations. 

(I once interviewed an administrator at Bilkent University in Ankara who said that he paid more for his kid's tutoring fees than for tuition at the college where he eventually matriculated.)

What to do?

Governments in these circumstances might, to address the situation, use progressive means such as income tax to increase public revenues (e.g., taxes, fees) supporting the improvement of schools' resources and teachers' skills. If most public schools can successfully prepare their students for exams and for later success—21st-century skills by day, drill-and-kill by night?—a country's overall productive and innovative capacities increase over time. The key however is to structure revenue-collection so that 1) enrolment in cram schools declines; 2) the rich pay a higher share of costs.

It's also critical that public schools build confidence in the effectiveness of their test-preparation courses.

The alternative? 

“Day after day we are cornered into an unrelenting competition that smothers and suffocates us,” the council said. “We couldn’t even spare 30 minutes for our troubled classmates because of all our homework.

“We no longer have the ability to laugh freely.”

Young people in South Korea are a chronically unhappy group. A recent survey found them to be — for the third year in a row — the unhappiest subset among countries in the Organization for Economic Cooperation and Development.