An Economist, an Academic Puzzle and a Lot of Promise

By Steven Pearlstein
Friday, May 8, 2009

SAN CARLOS, Calif. Early in his career, Paul Romer helped solve one of the great puzzles of economics: What makes some economies grow faster than others? His "new growth theory" might one day earn him a Nobel prize.

Then a decade ago, Romer, by then a professor at Stanford University, decided to tackle what may be an even tougher puzzle: Why were so many of his students coming to class unprepared and disengaged?

Romer's quest began with the proposition that the more time students put into their studies, the more they learn. As Malcolm Gladwell demonstrates in his new book, "Outliers," that's certainly true in many other areas of human endeavor -- the more you practice scales or swing a club, the better you are at playing piano or hitting a decent golf shot. Why should learning economics be any different?

It took some noodling around, but two years later, Romer raised $10 million in venture capital to start a software company he called Aplia. The idea was to develop interactive exercises that students could do in conjunction with the most widely used college economics textbooks. Students would answer questions, then get immediate feedback on what they got right and wrong, along with some explanations that might help them get it right on a second and third try. Aplia's team of young Ph.D. economists and software programmers also devised laboratory experiments in which the entire class could participate in simulated markets that give students a practical understanding of concepts like money supply and demand curves.

Students seemed to like Aplia's engaging and easy-to-use software, as well as the feedback. Professors liked Aplia even more. It allowed them to leverage the grade-grubbing instincts of today's college students to get them to do homework -- but without having to spend countless hours reading and correcting the assignments. They also got reports from Aplia identifying which students were having the most trouble with the material and which concepts were stumping the class as a whole.

"In the old model, a teacher had to be so engaging that he inspired students to put in the effort that is necessary for learning," Romer explains. "The problem is that that is not a scalable model. There simply aren't enough inspiring teachers and inspirable students."

Aplia spent the next five years refining its exercises and lab experiments and expanding the number of textbooks for which it packaged its material. In 2007, Romer sold the company to Cengage, one of the country's largest textbook publishers, which would provide Aplia with the capital and sales staff it needed to branch out into other subjects. Today, Aplia is used at more than 815 colleges by 170,000 students per term, with course offerings covering more than a dozen subjects. A quarter of all students enrolled in college economics classes work with Aplia.

It would be enough of an accomplishment if Romer and his Aplia colleagues had finally found a way to use technology to improve educational outcomes -- unlike earlier attempts, including the use of CDs tucked inside textbooks -- and there is some preliminary evidence to support that it has.

For me, however, what's really exciting about Aplia is that it finally holds out the possibility of bringing to higher education the same productivity revolution that has lowered costs and improved quality in almost every other industry over the past two decades.

By relieving instructors of the considerable burden of reviewing homework assignments, the technology makes it possible for universities to require professors to teach more students, either by increasing class sizes or the number of classes they teach. More important, it frees instructors to spend more time preparing for class, working with individual students and even doing their own research.

"It won't be long that we'll have enough of a foothold to be able to significantly improve the efficiency of educational institutions," said Nicholas Smith, Aplia's chief executive.

Aplia also paves the way for the textbook industry to ditch a lousy business model in which it has to charge ridiculously high prices for new books because it cannot collect anything from the students who buy them on the used-book market. Instead, publishers could move to a more sustainable model in which the textbook is priced close to the cost of printing and shipping (say, $20), while all students are charged a reasonable fee (say, $60) for what really matters, which is the content of the textbook, the labs and homework exercises. Other industries already use this model -- think hardware and software, or razors and razor blades.

The real revolution, of course, will come when Aplia or some other software company comes up with standardized tests that can measure student achievement at the end of the term in a way that not only helps the professor determine student grades, but also allows the university to compare the effectiveness of teachers and allows students, parents and taxpayers to see the relative effectiveness of entire universities. Under the current system, teachers are assessed by how popular they are with students, while universities are assessed by how well students perform on tests and what kind of research faculty produce.

"What we have right now is a reputational model for universities rather than an outcome model," Romer says. "The presidents at the elite institutions know that if the competition were to be based on some credible measure of output or value added, they would lose."

Steven Pearlstein is moderator of On Leadership at He can be reached at

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