IMO, I feel that it does and it doesn't. It does, because its a case of being guilty be association. People will look at the way one school does something, and automatically assume that every school that teaches that art, does things the same way.
It may not effect schools though, because some people may not care what others think. The owner of the school will simply have the attitude of, "Who cares what others are teaching. I know what I teach and its not what they teach. If people doubt the effectiveness of the art, they could come to my school, and they'll see the way its really supposed to be taught."
I agree with something that Bill said in his post....that some people just don't want to learn the arts. They're more interested in getting a paper that has their new rank listed on it and a new color to wrap around themselves. It is sad though, that many arts have to water themselves down, due to popular demand. Now, I'm not saying that every class should be so brutal that people leave crippled, and I know many schools do rely on the income, but when you have to sacrifice good solid values, because someone may get pissed off because their kid didn't pass, that does take away.
Of course, when that happens, its a trickle down effect. Ex: School A is more hard core and upholds its values. They make their students work for their rank. If you dont do good, you dont pass, plain and simple. After Joey fails numerous times, his parents pack up and move to School B where its so much easier. Over time, school A may suffer because of the actions of B. And any other school like A will most likely suffer as well.
A govt regulation of the arts? Nope, never happen. And no, I'm not saying or suggesting that there should be one.