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Hong Kong's English Language Industry
A problem of severe market distortion

Graph 1 - Industry social cost curve,
and supply curves for low- and high-level
English language competence.
economic modelling (index | the market for high-level competence)

Measuring the total
and marginal costs of supply
  Total cost
Area (A)
 Aacgh = low-level cost component
 Aabfh = high-level competence premium
 Aadeh = Aacgh + Aabfh = total cost

Marginal cost
Line segment (SM)
 SMfh = high-level competence premium
SMgh = low-level cost component
 SMeh = SMgh + SMfh = total
graph 2a (graph | market supply) | economic modelling (index)
Industry marginal cost curves (graph | index)




Supply curve for high level competence - The line ShSh is the industry supply curve for high-level English language competence. It represents the amount required to provide one additional individual with high-level language competence, when the total number supplied to the market is equal to any Q.

Though low-level language competence is a prerequisite for high-level competence, not everyone who achieves the former also achieves the latter. As a result, the costs associated with the acquisition of low-level competence are not reflected in the market supply curve for high-level competence.




Supply curve for low level competence - The line SlSl is the supply curve for low-level English language competence provided by the regional government. Like the supply curve for high-level competence it is upward sloping. This is because the cost associated with the provision of low-level competence to all individuals likely rises with the addition of each new individual required to obtain it.

As it is the regional government's goal to insure that everyone possesses a minimum level of English language competence, low-level competence is supplied to the market as a quasi-public, quasi-free good. It is quasi-public in so far as everyone must obtain it whether they want it or not, and quasi-free in so far as employers can obtain it at no additional cost. Goods and services must be both scarce and of value to users before markets can develop around them.



  Effective social cost of supply curve - Like the SlSl curve the SeSe curve is visible, but plays no direct role in the determination of the equilibrium price and quantity of high-level competence. It is obtained by combining the cost of providing low-level language competence with that of high-level competence (high-level premium) at each value of Q. In short, it is the vertical addition of the SlSl and ShSh curves.

Joint supply of low-level and high-level competence (graph | index)
At Qh the effective social cost of providing one additional unit of high-level English language competence is equal to the line segment SMeh. This amount corresponds to the hidden market price Pe and is equal to the vertical sum of the two line segments SMgh and SMfh:

  • the universal, low-level competence, language component, SMgh
  • the private sector, high-level competence, language premium, SMfh

The universal language component (SMgh) represents the marginal cost of low-level language competence at Qh. The private sector premium (SMfh) is the additional cost required to provide the low-level competent Qhth individual with high-level competence. This additional training occurs in several forms including pre-primary school training, complementary primary and secondary private sector training, advanced tertiary school training, post-graduate commercial training, and special training received in private and public schools in which English is the medium of instruction. As no one, who purchases the language services of high-level competent individuals, pays directly for the universal language low-level component, the effective market supply curve for high-level competence is that of the private sector high level-level premium (Sh).

As the number of native speakers in Hong Kong is very small (see discussion paper under Host nation and hosted guest - pdf document, opens to new window) , they are lumped together with those individuals trained in Hong Kong who have near-native ability.


Upward sloping supply curves for language competence (graph | index)
For the purpose of simplifcation and better understanding we consider only two levels of English language competence -- high and low. High level competence is that of a native or near native speaker. He can be specially trained in a particular area of the language, and/or have good familiarity across a broad range of topics. His writing and speaking ability are in good balance, and he demonstrates competence in more formal written and oral presentation.

Like most other goods and services we would expect that the cost of providing English language rises with increasing numbers. Three important points can be made in this regard:

  • Classroom training - Although it is possible to learn a second or foreign language on one's own, few people do so. In East Asia, where there is a dearth of native talent relative to perceived need, this is especially true. One cannot simply strike up a conversation with one's neighbor in the language of one's study. Moreover, it is difficult to find someone, who can readily proofread that which one has written. In order to exploit this native talent both efficiently and profitably schools are established, where interested students gather and native speakers teach, As each new student is added to a classroom, the average time spent one-on-one with all students necessarily diminishes. Thus, the cost of acquisition to each student rises - each must struggle harder. In order to compensate for this loss and to insure minimum quality standards additional resources, such as better quality instructional materials, more advanced teaching techniques, and expensive laboratory equipment are employed. These addtional expenditures are reflected in higher variable costs and rising marginal cost curves for all suppliers.

  • Out of class training - A similar phenomenon occurs outside of the classroom. There is only so much time and effort that one can put into the mastery of any subject before other interests that bring greater personal utility enter in. Thus, devoting more time to language study outside of class, does not simply mean greater personal sacrifice, it means greater sacrifice at an increasing rate. Of course, not everyone who acquires a second language acquires it because they must. On the other hand, the number of people truly interested in mastering a language beyond rudimentary skills sufficient for tourism, travel, and the like, are small. In the end, learning a second language, even for those who are inclined toward language learning, requires significant drilliing, memorization, and stamina. This effort is made doubly difficult to muster, when one can find little or no readily apparent use for a language (see discussion paper under Developmental state approach - pdf document, opens to new window).

  • Absence of synergistic effects - Because few students of the English language have an opportunity to utilize their classroom training outside of class, there are few positive external economies associated with second language learning (see discussion paper under Cultivating the soil for further understanding - pdf document, opens to new window).

Thus, under normal conditions we can expect the supply curves for both low-level and high-level language competence to be upward sloping.

Rising relative marginal cost of supplying low-level and high-level English language competence (graph | index)
English, Chinese, and mathematics are Hong Kong's three core course requirements. As such, the number of students taking English rises with overall enrolment. In any one school there are likely more teachers who can teach low-level competence than there are teachers who actually teach it. As a result when a school is faced with increasing enrolment, it can shift teachers away from less essential courses into the required core courses. High-level competence, on the other hand, requires either greater specialization on the part of the teacher or the hiring of native teachers who can command a higher price tag because of their relative scarcity.
Measurement of Total Cost (graph | index)
 Aabfh   Private sector cost premium - This is the cost incurred by the private sector for the provision of Qh individuals with language competence above the universal minimum standard provided by the public sector.
 Aacgh   Cost of public English language education - That portion of the region's tax revenue spent on primary, secondary, and tertiary English language education to ensure minimum low-level competence to Qh individuals.
 Aadeh   Total cost - Combined private and public sector spending including both the private sector premium and the cost of public English language education.
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