“‘Gotta go to Moraga!’ That’s what everybody says,” notes a visitor to the Oz-like place where the American educational revolution is being plotted: “That’s the code word for going to the mountain.” In truth, “Moraga” is a three-story building on a cul-de-sac of that name in the hills above the exclusive Los Angeles enclave of Bel Air. Moraga is near the haciendas and sprawling glass palaces of the men whom Michael Milken and his junk-bond wizardry transformed from a band of small-time entrepreneurs into kingpins of global commerce and technology. Few of those billionaires could have imagined that just three years after leaving a minimum-security prison near San Francisco, where he served twenty-two months for fraud, rigging securities prices and other felonies, Milken would have engineered a comeback as the putative Bill Gates of the untapped gold mine known as American education.
In 1996 a $500 million pot from Milken (who paid the Feds a $1.1 billion fine as part of his plea bargain but remained one of America’s richest men), his brother Lowell and Oracle Corporation chief executive Larry Ellison launched Knowledge Universe (KU), a holding company for an impressive transnational array of enterprises in the business of training human minds. While Milken operates from Los Angeles, the president, Tom Kalinske, a former head of Mattel and Sega, ostensibly runs the firm from Northern California, and 9,500 employees are scattered around the US and Great Britain in various operating entities.
The former Junk Bond King is positioning himself as a sort of Sam Walton of gray matter, offering Americans one-stop shopping for smarts from their diaper days to emeritus rank. Milken’s company, with annual revenues of $1.2 billion, has bought or purchased stakes in everything from Children’s Discovery Centers (CDC, also known as Knowledge Beginnings), the nation’s sixth-largest preschool company, with 25,000 toddlers in nearly 300 locations across the United States; to Spring, Britain’s largest vocational-training firm. KU owns or has invested in more than a dozen companies involved in computer training, proficiency testing, educational toys, strategic consulting and CEO training, as well as private, for-profit schools (nearly 400 at last count, ranging from preschool to secondary).
From a business standpoint, the education industry is certainly tempting: As a $600-billion-and-growing market, it is larger than either the military budget or Social Security. Like healthcare a few decades ago, it is dominated by government and nonprofits, and it is the target of sustained (and sometimes justified) attacks for inefficiency and failure. Milken’s for-profit ventures are only the most ambitious of a number of aggressive capitalist incursions into the once-gentle confines of service-oriented pedagogy. And they’ve captured Wall Street’s attention. Stock prices of two competitors, DeVry of Chicago and Baltimore-based Sylvan Learning Systems, which both provide a cafeteria line of educational technology and services, have almost tripled over the past three years. CBT Systems, a provider of business-training software and a subsidiary of another KU competitor, CBT Group, went public in 1995 at $16 a share and, had it not split, would have a stock value of more than $200 today. Even household names like Sun Microsystems, Microsoft, Oracle, Apple, Sony and the Washington Post Company are getting in on the racket, investing millions in education-related enterprises. “It’s absolutely an exciting time to be involved in this industry,” notes Michael Moe, an analyst with Merrill Lynch who specializes in education securities. Moe estimates that the for-profit component of the US education and training industry was $70 billion in 1998, and that it will grow at 13 percent annually for the next few years.