A Libertarian Builds Low-Cost Private Schools for the Masses

Bob Luddy was tired of trying to convince North Carolina educrats to improve the state's public schools, so he built his own network of low-cost private schools that the government can't meddle with.

A libertarian businessman based in Raleigh, North Carolina, Luddy made his fortune as the owner of the nation's leading manufacturer of commercial kitchen ventilation systems. CaptiveAire has factories in six states, and its 2016 revenues were $400 million. But what does fabricating stove hoods and building HVAC systems have in common with turning out successful students? More than you might think.

Luddy became interested in education when he observed that many hires at CaptiveAire lacked the basic math and science skills to thrive on the job. He volunteered to co-chair a statewide education commission and met with North Carolina officials to voice his concerns. "They were happy to discuss all of these ideas," Luddy says, "but they weren't going to implement any of them."

The last straw for Luddy came in 1997, when he ran for a seat on the local school board and lost. It turned out to be a "great blessing," he says, because it led him to start focusing on creating alternatives to the traditional public schools.

Almost immediately, he filed a charter for Franklin Academy, which today is the third largest charter school in North Carolina, with about four applicants vying for every kindergarten spot.

But Luddy wasn't satisfied. "Charters are far better than the [traditional] public system," Luddy says, "however, there's still regulation…and over time, the bureaucrats are going to continue to load more regulation on charters."

In 2007, he decided to take a more radical step by creating a non-profit network of schools called Thales Academy. Influenced by economist Albert Hirschman's classic 1970 treatise on political science, Exit, Voice and Loyalty, Luddy conceived of Thales as a way to give families "exit."

"'Voice' is [when] you go to vote [or you] express an opinion…Exit…is like Uber…where someone comes up with an entirely new idea, they bypass the existing industry, and they get amazing results."

It was necessary to set the cost of attending Thales within reach of most families. Tuition is $5,300 for elementary school, and $6,000 for junior high and high school. At that price point, Thales is able to cover its costs with only a few exceptions: It takes advantage of North Carolina's tax-exempt financing for school construction, and Luddy himself makes a one-time contribution to help defray capital costs with each new facility. Luddy also provides about 6 percent of the student body with financial aid that covers up to half the cost of tuition, and 34 students (1.5 percent) receive financial aid through North Carolina's Opportunity Scholarship Program.[*]

So how does Thales get by with so little revenue? (North Carolina's public schools spent about $9,300 per pupil in the 2015-2016 school year.) One factor is that it doesn't serve kids with severe learning disabilities who are more expensive to educate. Luddy believes those students are best served through North Carolina's school voucher program.

Another way Thales saves money is by spending significantly less on infrastructure than the public system. In 2013, the town of Rolesville, North Carolina got a new public high school that cost $76 million. A year later, Thales opened a $9 million high school two-and-a-half miles away. Though much smaller, when divided by the number of students each building can accommodate, the Thales school cost half as much. One difference is that Rolesville High School has tennis courts, a football field, and a baseball diamond. "Modern day public schools," says Luddy, look more like "sports complexes."

Thales schools also have no auditoriums because they're too expensive to build, heat, and cool.

Another savings is on personnel. There's no cafeteria, and thus no cafeteria staff. There are no school buses, and thus no school bus drivers. There's also hardly any support staff, and fewer actual teachers. Thales targets a teacher to student ratio of about 26 to one, compared to one teacher for every 15 kids in North Carolina's traditional public schools.

Most schools boast about small class sizes, but Luddy is proud of having large classes because it demonstrates efficiency, in the same way that when CaptiveAire can produce more stove hoods with fewer employees, the savings ultimately get passed on to customers. Thales is able to accommodate larger class sizes by grouping kids in the same classroom who have roughly the same command of the material. This way they can all follow the lesson with less individual attention from the teacher. It's part of a pedagogical approach called "direct instruction," which Luddy believes provides a superior education in a more efficient manner.

"In business we look at outcomes," Luddy says, "did we gain sales, did we please our customers? Schools don't look at it this way. We have a big building. We have sports. They're all inputs."

As Thales enters its tenth year of operation, Luddy and his team have grand ambitions. There are currently 25 new Thales schools in the planning stages that would extend the network's reach into Georgia, Tennessee, and Florida.

"The old educational establishment is gradually declining," says Luddy, "so one of my goals is to be a shining example of what can be done so that others will follow."

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Written, shot, edited, and narrated by Jim Epstein.

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[*] The original version of this story didn't mention that 34 students at Thales receive financial aid through North Carolina's Opportunity Scholarship Program.