What Does It Take To Get Ahead?

Meet YY Lam, rock star (pictured). Okay, he’s not really a rock star, but he kind of looks like one. He’s got the hair, the $190,000 sports car and lots of adoring fans.

What Mr. Yat-yan Lam really does is teach Chinese language at one of Hong Kong’s biggest private after-school tutoring institutes called Beacon. He’s so highly sought after that last year a rival company called Modern Education tried to steal him away with an $11 million annual pay package.

You read that right – that was $11 million. And no, the 28-year old Mr. Lam did not take the offer - - which brings to mind two questions: 1) Just how much money is Mr. Lam making now at Beacon? And 2) what kind of world is it when a private tutor can make that kind of money?

On the first question, we don’t know how much Mr. Lam makes, but we can guess it is a lot. Mr. Lam teaches over 10,000 students mostly via live video broadcast and has a staff of 100 helping him to prepare lessons, correct homework and continue marketing his personal brand. He is believed to have a revenue sharing agreement with Beacon, which filed for a public stock listing in Hong Kong late last year. In Beacon’s prospectus, one of its risk disclosures was that a single unnamed tutor generated 40% of its revenue of HK$328 million (about US$42 million) -- and we can guess that is Mr. Lam.

As far as what kind of world we’re living in, it’s apparently one where Asian cram schools have gotten so big they can engage in pro-sports-like battles for superstars. Mr. Lam is not the only super-tutor in Asia. There are similar figures in Singapore, Taiwan and Korea. And study institutes themselves have built prestigious brands – so much so that some students find themselves attending lesser institutes to prepare to gain admission to the more glamorous ones.

According to Global Industry Analysts, the global market for private tutoring will be over $200 billion by 2020, and in the biggest market, Asia, growth will exceed 10% a year. Over 70% of high school students in Singapore, Taiwan and Korea get private tutoring, and one market research firm found that 9 out of 10 “middle class” students in China are in for-fee after-school “schools.”

Asians always have placed a high value on education, but the big money really starts from the never-ending anxiety among parents that their children will fall behind in a competitive world.  Life-defining university entrance exams have made exam coaching, in the words of The Financial Times, a “blood sport.”

While education usually is viewed as an unequivocal good, one must wonder if all this private tutoring has become too much of a good thing. Are all these institutes really developing human capital, or are they wasting valuable resources and exacerbating inequality?

At least in Korea, there is a growing sense that private education spending has become wasteful.  For one thing, Koreans are at a point where rich returns on education spending are no longer guaranteed. It looks increasingly doubtful that in today’s competitive environment, better test scores really make individuals much more economically useful. What’s more, many individuals lament the all-encompassing arms-race mentality where the only real goal is to get ahead of others. Few could be happy with that, but how do you end an arms race?