Edupreneurs v. Kleptobankers

Based on a business plan praised by analysts at BigCos and a top VC firm

Archive for the ‘Reform of Banking Regulation’ Category

Canonical research findings suggest that American entrepreneurs who establish popular online markets for customized education will catalyze the creation of many good jobs in America, and will end the reign of America’s kleptobankers. Some of the researchers: Clayton Christensen, Paul Romer and Paul Krugman.

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UPDATE: A Google employee blogs a review: “A fantastic post about disrupting education.”  Whew! 🙂

Clayton Christensen is a Harvard Business School professor who originated the canonical Model of Disruptive Innovation.  He is also a co-author of the 2008 book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns, which makes a business case for an online market for customized education.  Excerpts:

“In the last three decades, increasing numbers of cognitive psychologists and neuroscientists…have produced a multitude of schemes to explain…that people learn differently from one another…

Students need customized pathways and paces to learn…

In the first phase of the disruption of the instructional system the software will likely be complicated and expensive to build. The reasons for this can be traced to the use of the existing commercial system when marketing the system…as well as to the relative immaturity of Web 2.0 software. Within a few more years, however, two factors that were absent in stage 1 that are critical to the emergence of stage 2 will have fallen into place. The first will be platforms that facilitate the creation of user-generated content. The second will be the emergence of a user network, whose analogues in other industries would be eBay [i.e., an online market is a type of user network]…

The data suggest that by 2019, about 50 percent of high school courses will be delivered online…

80 percent of courses taken in 2024 will have been taught online.”

American companies that own a popular online market for customized education can expect to increase profits dramatically by:

  1. introducing a loan program for consumers of customized education
  2. making the popularity of the company’s market and loan program mutually reinforcing, so a borrower who performs well as a student is rewarded with a lower interest rate
  3. taking advantage of new government regulations to become a bank, as a means of increasing the amount of money the company can lend
  4. introducing other loan programs and financial services that complement the market

Canonical research findings suggest that these companies will catalyze the creation of many good jobs.  One source of these findings is Paul Romer, a Stanford economist who originated New Growth Theory, which updates growth economics for the information age.  From Romer’s article on economic growth in The Concise Encyclopedia of Economics:

“Perhaps the most important ideas of all are…ideas about how to support the production and transmission of other ideas…North Americans invented the modern research university…As national markets for talent and education merge into unified global markets, opportunities for important policy innovation will surely emerge…There are…safe predictions. First, the country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector.”

Other canonical research findings suggest that the aforesaid companies will end the reign of the kleptobankers.

In their 2006 textbook on International Economics (7th ed.), Paul Krugman and Maurice Obstfeld define “the problem of collective action”:

“While it is in the interests of the group as a whole to press for favorable policies, it is not in any individual’s interest to do so.”

Krugman and Obstfeld continue:

“In a now famous book [The Logic of Collective Action], economist Mancur Olson pointed out that…the problem of collective action can best be overcome when a group is small (so that each individual reaps a significant share of the benefits of favorable policies) and/or well-organized.”

From a 2009 book co-authored by Clayton Christensen:

“Regulations ultimately change in reaction to [disruptive] innovators’ success in those markets.”

Krugman and Obstfeld provide evidence that Christensen’s innovators equate to Olson’s small group. Specifically, the co-authors summarize research which makes it plain that, in their words:

“Politicians are, indeed, for sale.”

Of course, successful entrepreneurs in a given industry are the small group who have the motive and means to buy changes to regulation that disadvantage the industry’s old guard.

From elsewhere in the 2009 book co-authored by Christensen:

“Those disruptors that successfully dismantled the regulations that stood in their way succeeded by circumventing the regulation — by innovating in a disruptive market that was beyond the regulators’ reach or was peripheral to their vision.”

For a banking entrepreneur, a peripheral market that is ideal to disrupt is one wherein:

  1. the act of consuming makes customers (more) creditworthy
  2. a lot of money can be made directly (i.e., independent of banking)

Needless to say, creditworthiness correlates positively with educational attainment.  And if Christensen’s projections about the growth of online education are not way off base, owning a popular online market for customized education will be very lucrative.

Q.E.D. 🙂

What remains to be done, then, is to expedite the advent of said market-makers.

I have developed a business plan for such a market-maker.  The plan has been praised by analysts at Microsoft, and top venture capital firm Draper Jurvetson.  The plan is presently circulating within The New York Times Company (a media company is an ideal source of funding for the plan).

In particular, the plan makes the case that certain steps must be taken to popularize an online market for customized education.

A preview of the case:

The company will introduce an online market for advertisement spaces.

The company will provide a virtual currency for use at the market.

In combination, the market and the currency will provide people with new and improved ways to showcase and earn money from expertise (e.g., a way for professionals to network that is vastly superior to LinkedIn or Facebook).

The popularity of the ad-space market will create demand for new ways to showcase expertise.

To meet this demand, the company will introduce many online prediction markets.

The popularity of the ad-space market and the prediction markets will be mutually reinforcing.

The advent of these markets will motivate people to share, aggregate and analyze information — and to share or sell their aggregations and analyses. Much of this activity will be undertaken to help consumers of customized education spend wisely. In particular, said consumers will gain valuable insights from analyses of prices in the ad-space market, and of data from the prediction markets.

The popularity of the customized-education market and the other markets will be mutually reinforcing.


Best regards,

Frank Ruscica


Written by Frank Ruscica

July 13, 2009 at 11:20 pm