The Education Business: A Study in Failure

The contentious confirmation hearings for Betsy DeVos highlighted Americans’ fears of mixing education and free enterprise. DeVos’s sympathy toward for-profit charter schools has been criticized as an abandonment of our public obligations to the higgledy-piggledy of the capitalist marketplace.

In his new book Class Clowns: How the Smartest Investors Lost Billions in Education, Columbia Business School professor Jonathan Knee raises a different kind of concern. He wants to know why so many education businesses have failed as businesses. “Some of the most respected minds of our generation have invested many billions of dollars in for-profit education enterprises,” he explains. “And, with surprising regularity, they have lost their shirts.” Class Clowns finds that the education field has attracted much lofty rhetoric but little sustained attention to social and institutional realities.

Consider media mogul Rupert Murdoch, who claimed to discover in education “a $500 billion sector in the U.S. alone that is waiting desperately to be transformed.” To put an end to that desperate waiting, Murdoch in 2010 bought a company called Wireless Generation that he, along with former New York City Chancellor Joel Klein, tried to use to revolutionize technology in schools. It didn’t work. The company’s Amplify tablet was less a competitor for the iPad than a non-comedic version of the Sabre Pyramid featured on The Office. The Amplify brand, along with Murdoch’s larger investment, lost money while changing little about the way that schools operated.

Sabre Pyramid tablet
Unlike Rupert Murdoch’s tablet, this one was never produced. (Dunderpedia)

The Edison Project was another scheme with a grandiose vision untethered to reality. It proposed to found one thousand model schools that would educate some two million students, providing the very best amenities and yet somehow turning a profit. The founder, Chris Whittle, compared the venture to the early space flights of the Mercury astronauts, but Knee finds Edison to be less NASA and more The Music Man: Whittle’s spiel, he observes, was “a little reminiscent of Harold Hill’s pitch to the residents of River City.”

Whittle talked a good game but didn’t bother to find anyone with experience in the field. He relied heavily on Benno Schmidt, a trained lawyer and lackluster president of Yale who had spent little time in business or K-12 schools. Edison had its IPO in 1999 and collapsed by 2003. Ironically, the people associated with it “have come to be embraced by school reform advocates as charter school pioneers, despite the dramatic public implosion of their business enterprise.” The hype continues even after utter defeat.

On and on it goes. Michael Milken, the junk bond trader turned philanthropist, inaugurated something called Knowledge Universe, which he hoped would provide lifelong education from babyhood to old age. The French entrepreneur Jean-Marie Messier bought educational publisher Houghton Mifflin with the idea of uniting media and school under the auspices of “edutainment.” Messier made no secret of his self-regard: his memoir J6m.Com was short for “Jean-Marie Messier Moi-Meme Maitre du Monde” — Jean-Marie Messier, Myself, Master of the World. Yet Milken and Messier lost hundreds of millions, too.

These investors were highly successful money-makers, so how did they go so terribly wrong? At the broadest level, they could not comprehend that education operates in specific local contexts. Knee weaves throughout the book the issue of scale. Economies of scale are one of the foundations of modern capitalism. Buy a good widget-making machine and and your cost per widget will fall as you make more, so it’s better to make one million widgets than one hundred.

Class Clowns cover imageStudents aren’t widgets. Despite the dreams of a single learner-making machine (sometimes called the Internet), they generally have their own classrooms, teachers, textbooks, computers, and so on. This is all costly and can’t easily be scaled, no matter the ambition of high-flown platitudes about disruption and transformation.

Furthermore, education still has its own regional and geographic variation. The idea of a single Knowledge Universe that covers everyone in every place could only be taken seriously in an investment banker bubble. Murdoch, Milken, and the rest refused to engage the complex worlds of teachers, administrators, and local governments. They were, themselves, masters of the world, and that seemed like enough.

Could there be a successful education business? One counterexample in Class Clowns is Teachers Pay Teachers (TpT), which describes itself as “the first and largest open marketplace where teachers share, sell, and buy original educational resources.” Think of Etsy, but for worksheets, lesson plans, and instructional videos.

TpT takes a different perspective on the business of educating. It was founded by a public school teacher, not a financier. Rather than ignoring the voices of actual teachers, it puts them at the center of the enterprise. It leverages network effects, whereby each additional user brings more value to the whole.

Michael Milken wanted a magnificent Knowledge Universe funded and organized by Wall Street. TpT imagines a more modest place, where teachers and learners do the hard work of making things a little better, day by day and assignment by assignment. As Jonathan Knee shows us, the fantasy of the Knowledge Universe will never be able to compete with the richness and diversity of the real world.

Jonathan A. Knee, Class Clowns: How the Smartest Investors Lost Billions in Education (New York: Columbia University Press, 2016)

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