It's Hard to Go Back to Building Widgets

It's Hard to Go Back to Building Widgets
October 1, 1998

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)

"Just a kid from the streets of Philadelphia" who put himself through eight
years of night school, A.J. "Jack" Clegg truly understands the value of
education in changing the lives of city children. As chairman and chief executive officer
of Nobel Education Dynamics, Inc., he also understands how to deliver that value to more
than 18,000 children in the company's private schools across the country.

An engineer in the aerospace industry, Clegg worked his way through positions of
increasing responsibility at Xerox Corporation, IBM, and Nashua Corporation. At the age of
37, he was running five small companies. In 1979, together with John Proctor, he formed
his own company, building it up to an $85 million operation bought out by a British firm
in 1986. He then became actively engaged in helping turn companies around . . . and those
financial and business interests brought him into the education market.

Rockinghorse Child Care Center's stock had tumbled from $7 to 31 cents when Clegg was
asked to intervene. He quickly recognized that one of the company's components, Merry Hill
Country Schools in the Sacramento area, offered not merely child care, but a unique K-8
education process that had been in existence since 1949.

As a result of Clegg's intervention, the firm's name was changed to Nobel Education
Dynamics in 1993. Its mission is to become a leading education company by making the
private school alternative available to middle-income working families.

Nobel currently has a capacity of nearly 24,000 students and operates under thirty
different local school names, with 134 pre-schools, elementary schools, and middle
schools. The company will change its name in November to Nobel Learning Community, Inc.,
to reflect its focus on locally oriented learning communities and its expansion to schools
for learning-challenged children.

Clowes: How do you view the market for private schools that you're
operating in?

Clegg: In 1993-1994, the pre-school market was $30 to $40 billion and
K-8 was $200 billion, with nobody other than the public schools and the Catholic schools
having any large share. There were no large, multi-unit, for-profit schools systems in the
United States. True, there were 26,000 private schools out there, but less than a thousand
were private, non-sectarian for-profit schools.

At Nobel, we realized we'd be plowing new ground. In doing this, we've had to make some
mid-course strategy changes and some changes in assumptions as we've gone along. But the
nice thing about being a company versus being in a bureaucracy is that we can sit in a
room and make those changes in an hour. If we've got to change the curriculum because
something is not working, we can change it. If we need to change the structure of our
buildings, we change it. We don't need ten months to get through a bunch of committees.
That makes us much, much more efficient.

Clowes: How does Nobel view the market for private schools in
terms of size, segments, competitors, and so on?

Clegg: The market is an evolving picture. We still see ourselves
continuing to be a major player, but we now have some really big boys entering the market.
For example, Knowledge Universe, which is backed by Milken; Kindercare, which was bought
by KK&R; and Aramark, a $6 billion company that is trying to do what we're doing
through its Children's World operation.

We've had about three to four years of virtually no competition in the K-8 market, but
we know we're going to have it now. So what we've got to do is to continue to advance
quickly in the programs and the quality we provide. There are other changes out there,
too, like charter schools. They're confusing, but there are more and more of them and
we're waiting to see where they settle down.

Where we feel the opportunity is rising and the momentum has changed tremendously in
the last six to nine months is in the voucher movement. You're getting more and more
backing there. The African-American community is finally waking up and realizing they've
been fed a bunch of bunk, and that this could be really vital to the inner-city school
kids to give them equality.

Clowes: So you're looking to place new schools in their

Clegg: If the vouchers come, we will go into the inner city. The
problem is: We have to make a profit to get people to invest in our company to keep
expanding, and we can't make a profit in the inner cities today because the parents can't
afford even the low tuitions that we are charging.

But there has been a big change in vouchers in the last year. When I ran a session on
vouchers at the Edventures conference a year ago, the arguments were intense. When I ran
the same session this year, even I was amazed that the consensus of the entire room was
that vouchers are inevitable. That is a big change.

Now, there are some difficulties in getting into the K-12 market, which people are
discovering. It's a reputation-driven business. With preschools, you can fill them up
pretty quickly, but K-8 or K-12 schools are reputation-driven. And it's not national
reputation, it's local reputation, which means that you have a very slow build-up of
children. It can take two to three years to make a profit in K-12, which is very different
from preschool, where you can make a profit in six months.

In addition to that, you have high facility costs and a shortage of teachers. One of
the number one priorities in our company is: How do you attract and keep good teachers
without paying them what the public schools are paying--which we can't afford to pay if we
want to keep the tuition low. But we do give other benefits, like anywhere from 50 to 100
percent scholarships to anybody that works for us. We get some very good teachers that

Clowes: How much does it cost to provide an effective education at
a private school, and what does that education consist of in terms of class size, school
day, school year, and school size?

Clegg: We're charging between $5,500 and $6,500 a year. We have 17
kids per class on the average. Our schools are twelve hours a day, no matter what grade
you're in. Our tuition for an elementary school is for a ten-month year, but we offer
summer camp programs. For the preschools, our program is for twelve months a year. The
basic size of our elementary school is 300 children.

I tell my shareholders two things. First, if you go into the business of education, and
you try to make short-term profits by cutting the quality of your program, you will get
just that--short-term profits, because you won't last. If you provide a quality product,
you can last ten years to a hundred years because once you get that reputation for
quality, you're there forever.

So, the way we achieve our low cost is not by reducing the quality of our programs. In
fact, we just sent out a bulletin to the newspapers about how many of our fifth-graders
are achieving at a twelfth-grade level, based on Stanford Achievement Tests.

Second, we want to have small, manageable, locally oriented neighborhood schools. Could
we make more money by building them bigger? Possibly. But, remember that a key to a good
education is having a controlled environment: no drugs, no safety issues, and no children
coming into your schools that don't belong there. Our teachers and our principals know
every kid in their school, and they know the parents.

Clowes: One of the keys to success in any kind of business is
delivering high-quality product at low cost. How can private schools achieve high student
outcomes cost-effectively?

Clegg: The way we keep the quality up and the cost down is just pure
and simple reduction of bureaucracy--improved efficiencies in centralizing all our
administrative costs. When I came into the company, our total administrative costs across
the whole country for our schools were 9.3 percent of tuition. They're now 6.8 percent.

I have 35 to 40 people here who basically do all the administrative functions, doing
the payroll and paying the bills for all 134 schools. In our schools, we hold our
non-teaching personnel down to a minimum, with just a principal and an assistant
principal. We may have two maintenance people for ten schools, but we have no secretaries.
In the public schools, you will find secretaries and maintenance people in droves.

As far as achieving academic outcomes, we start young. We start second language between
the ages of two and three, and we do the same with computers. This is what comes out of
our small classes, more localized schools, good teachers, and quality programs: Color or
creed doesn't matter, or whether they're rich or poor--these kids are learning.

I truly believe that, given the chance, we could go into the inner cities and deliver
this type of education at less than 80 percent of what they're paying today, and produce
well-educated children. The sad part about it is that everybody is fighting the reforms
that will allow this to happen.

Clowes: What changes do you see ahead for private schools?

Clegg: We have new people coming into the market because of financial
opportunities. We have legislators beginning to finally see that maybe vouchers are the
way to go. And we have the unions beginning to lose their power to stop this from

What I see coming quickly is more privatization of the education system, or
semi-privatization through charter schools. This is not going to be stopped, and, in the
long run, public schools will improve because of it.

Clowes: With almost two-thirds of the states already approving
charter schools, what do you see as the major obstacle to legislative approval for

Clegg: The major obstacle is those that want to maintain the status
quo: the unions first and the bureaucracy second. I think what's going to break the back
of that obstacle will be the minority communities. If the minority communities in the
inner cities ever get together and say, "We think vouchers could work for our
children," suddenly you would see legislation like you've never seen before. I think
that's the answer, but people like myself and others have got to go out and give the other
side of the story, because the story they've been given is a story from the unions and the
current bureaucracies to maintain their position.

Clowes: What message would you most like to communicate to our
readers about education issues?

Clegg: Stop the bickering. Stop the selfishness. Start treating the
future of our children as a nonpartisan top priority, and not as a political football.
Stop lying to the inner-city children and families who have the greatest need.

A higher-quality education is not only possible, but more practical than the bandages
being applied to the open wound that we have today. A quality education can be less
expensive if the free market system is allowed to flourish; it can be done for less than
80 percent of what it's costing per student today. This is not a racial issue and it's not
a union issue, it's a child issue.

I believe also that the learning process must start earlier and that school days must
be longer. Today, some 65 percent of the women with children in school are in the
workplace, and we have not, as a public school system, addressed that fact. Most kids get
into trouble between the hours of 3:00 and 7:00 at night . . . but not the kids from our
schools--because they're still in school.

All children can learn if provided the proper environment, no matter what color or
creed. There can be no equality until there is equalization of educational opportunity.
This doesn't exist today, but it can exist simply by allowing education dollars to follow
the student to the best possible alternative for that child's education.

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)