It is so odd that you could almost describe the whole issue of pay/basis of engagement as a good example of the "British disease".
Until JAR came in, the flying schools had it "easy" when it came to sourcing Instructors. The self-improver route meant that there were plenty of "instructors" willing to work for nothing, just to get the hours.
Note my use of lower case 'i' for these type of people, who by and large have no interest in t e a c h i n g. Being an Instructor is NOT just about having the rating.
Now that JAR is here, in time, the flying organisations will have to become competitive on pay as the number of "sheep" who are willing to work for nothing, gradually decline.
In the USA, it is quite routine in a professionally run flight school, for the Instructor to use a Punch Card machine at the start of the lesson and the Clok Off at the end of the lesson to present you with a separate bill for the instruction element of your lesson.
I really don't accept that if people wanted quality instruction, they would not be prepared to pay a decent sum for a Teacher as opposed to someone with just an Instructor rating.