The Low Capitalization Rate of Potential

Last evening I went to the kick off of KIPP:Chicago.  It was a stimulating evening, highlighted by a speech from Malcolm Gladwell.  Michael Feinberg talked about how everyone told them KIPP couldn’t be done anywhere.  Yet, it’s making a massive difference in major US cities and in rural areas like the Mississippi delta.

Knowledge Is Power Program

Knowledge Is Power Program (Photo credit: Wikipedia)

Gladwell spoke for a little bit and relayed his personal story.  His mother through pure luck made it through high school and attended college.  While a purposeful journey for her and her family, it was pure serendipity that made it possible.  He wouldn’t be where he is today without that stroke of luck.

Then he talked some relevant numbers for today.  The top 5% of income earning families in the US graduate 82% of their children from college.  The bottom 5% only graduate 8% of their children through college.  The scary thought, there are a lot more people in lower stratas of income.

But that difference creates opportunity that society needs to act upon.   Economists describe that difference as the low capitalization rate of potential. Gladwell says it’s more important than any other economic statistic.

What to do about it? Education reform and spending dominates a lot of the political speak spewed by both sides of the aisle. Nothing gets done though for a variety of reasons.  It’s easy to give the blame to the entrenched teachers unions-and they are major impediment to reform.  One thing Michael Feinberg said was interesting.  Instead of saying, “Every Child Can Learn”, we need to start saying, “Every Child Will Learn”.

Another oft cited statistic is how rough the home life is for many of our underperforming children.  Both Gladwell and Feinberg said it doesn’t matter how rough the home life is, how bad the neighborhood is.  There is little we can do to control that.

What matters is how we set up our schools to allow those children to achieve success and learn.  It also matters how we educate and help the peer group of each child.  Better performing peer groups create better performing children.

That takes the onus off the kids, the system and everything else and puts it on us.  If every child will learn it’s up to us to make it happen.

KIPP is making that happen.  The Noble School organization is making that happen.

Lately in the American dialogue, there has been a lot of talk about not sending kids to college.  Personally, I have been very uncomfortable with that idea.  People that graduate from college do better financially than people who don’t, regardless of degree. At the end of the day, I believe a better educated population makes for better citizens.

There is a lot wrong with American education.  But it’s still a worthy goal to get educated.  Glenn Reynolds has correctly pointed out the gross negligence of the American education bureaucracy, especially at the collegiate level.  College costs have skyrocketed in the past generation at a far greater rate than almost any other cost that comes to mind.  The college bureaucracy has grown in tandem with the costs.

Ironically, out of the last three Presidential candidates, 2/3rds of them believe ardently in school choice and said, “It’s the civil/human rights movement of our generation”.  Neither of school choice reformers were elected to office.  That fact speaks to a lot of things, but it certainly points out the power of unions.

Feinberg made a couple of points about those naysayers on the value of college.  First, virtually all naysayers went to college and many have advanced degrees.  Second, while everyone isn’t cut out for college, everyone should graduate from high school with college ready skills.

Gladwell made two great points that I loved.  First, our children are graduating from college with a crushing amount of debt.  That impinges their future lives, and retards the progress of America as a society.  Crushing debt limits your freedom to do things, take chances, and make other purchases that allow you to live a secure life.  Second, we need to forget about pushing kids towards certain colleges simply because of the prestige surrounding the college.  Sometimes kids go to prestige institutions and flounder in the lower part of their class.  It’s not a good collegiate experience.  Data from affirmative action confirms a lot of that.  It might be better for those children to go to a different, less prestigious school that actually fits with their personality where they can thrive. That doesn’t mean less academically rigorous.  But everyone is different and launching everyone into a prestige institution is just like putting round pegs in square holes.

The topic of technology and education came up.  There are many that think we can use virtual learning to accomplish “scale” in educating our children.  I agree and disagree on this point.  There are certainly a lot of neat things we can do with technology to make children learn more efficiently.  There are all kinds of distance learning and video we can do.  But, at our core we are human.  Sometimes we need a hug.  Humans need, crave, that physical presence of another human to better accomplish what we set out to do.

This craving of human contact and interaction is universal.  There is only so much we can teach ourself in isolation.  That’s why I am investing in companies like Dabble, Desktimeapp, Kapow, and Brilliant.  They integrate the physical and virtual in very unique ways within the segment of the marketplace they strive to dominate.

An added anecdote.  When I speak with traders that make the jump from the pit to the screen, the ones that toil in isolation don’t do as well as the ones that are in a trading room. Their mental state is impaired. When I listen to traders from different trading rooms speak to one another, they talk about the characteristics of the room.  “Are you in a good room?” is a consistent question I hear.

That speaks directly to the human experience as it interfaces with technology.  It’s why when we consider ways to revolutionize education, there is only so much we can do with technology.  There is still blocking and tackling that must be done utilizing the interpersonal skills of a human being in a physical setting.

It was indeed a stimulating evening and I learned a lot by being there.  I hope I shared some of that with you.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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