The Education of Mike Milken | The Nation


The Education of Mike Milken

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"'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.

About the Author

Russ Baker
Russ Baker is the founder of the Real News Project. He may be reached at contact@realnews.org.

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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.

In the most traditional area of education--preschool, K-12 and college--Milken is a for-profit player. He has a minority stake, likely to become a majority, in Nobel Education Dynamics, a Pennsylvania company that runs 139 schools in thirteen states. He plays a role in the for-profit early-childhood field through CDC and is an investor in the startup online Knowledge University and the Internet education company UNEXT.com. The business of for-profit schools has a mixed record, in both financial and educational terms, but it continues to expand: The "virtual" University of Phoenix is now the fastest-growing and largest provider of higher education for working adults in the country, with more than 60,000 students. The Edison Project, founded with great fanfare by former Yale University president Benno Schmidt and new-media entrepreneur Chris Whittle in 1991, is avidly seeking contracts to manage public charter schools. It now has fifty-one under its control, though it has yet to turn a profit.

Companies like Milken's are not just competitors with public schools; they are poised to supplement the traditional classroom, viewing public and nonprofit educational institutions--as well as for-profit firms--as both potential customers and avenues to a vast consumer base. What distinguishes much of the capital now pouring into education is that it is linking the previously sacrosanct domain of the classroom with more conventionally business-dominated information spheres. With its array of holdings in software, corporate consulting and educational service companies, Milken's Knowledge Universe perhaps best exemplifies this trend, but it can also be discerned in the strategy behind KU's closest rival, Sylvan, which had 1998 earnings of $36 million on revenues of $440 million. It is as ambitious as KU, with holdings in testing preparation and administration, teacher education, English-language training, long-distance learning and college-level study abroad. Sylvan insists it isn't out to supplant public and nonprofit schools, but to complement them.

As noted in books such as Robert Reich's The Work of Nations and Jeremy Rifkin's The End of Work, changes in the economy have raised the stakes considerably. Many economists contend that knowledge is increasingly the commodity that determines economic success and failure. A 1997 Education Department study showed that college graduates who participated in additional training from the beginning of their employment earned an average of $601 per week, compared with $461 for those who did not. Among everyone from preschoolers' nervous parents to older workers fearful of being overtaken by better-trained youngsters to firms struggling to retain a competitive work force, the demand for superior technical knowledge grows steadily in tandem with the fear of falling behind. This has become the new conventional economic wisdom, justifying everything from federal investment in education and training at the expense of job-creating economic stimulus packages to massive private capital flows into the burgeoning field of creating and disseminating information.

As Milken asked rhetorically in a rare interview with the Los Angeles Times, "What type of world are we living in?" He offered his own answer: "One where intellectual capital is the most valuable component." And if he has his way, it will soon be a world controlled to a large extent by educational conglomerates like his. Even if Milken's most direct impact is within the for-profit education sector, the effect of his range of investments on public schools could be profound. Not only are public schools purchasing KU's educational products but they are watching Milken's schools closely, both as a potential model and as a competitive threat.

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