By JEFF BENNETT

(See Corrections and Amplifications item below.)

More than a year ago, Kaiser Aluminum Corp.

was looking for a spot to build an $80 million office-and-research center that would employ 150 workers.

After considering cities in three different states, the maker of aluminum products settled on Kalamazoo, Mich., a once-prosperous manufacturing city that had lost thousands of jobs in the last decade or so.

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One of the draws: The Kalamazoo Promise, a program that provides at least partial college tuition to all graduating seniors who spent their high-school years in the city’s public schools.

Just as Kaiser was gearing up its search, a group of wealthy philanthropists who have remained anonymous unveiled the Promise as a gift to the city. The lure of the program as a benefit for Kaiser employees, and its potential to produce a highly educated work force, proved a big attraction, says Martin Carter, vice president and general manager of common alloy products at Foothill Ranch, Calif.-based Kaiser.

“We are building a sophisticated facility with new technology, and we want well-educated people who will work with us and want to live in Kalamazoo,” Mr. Carter says. “Some of the other sites gave a lot of talk about future education plans, but in the case of Kalamazoo, they already had a commitment to developing a well-educated community.” Kaiser says its Kalamazoo center will be fully operational in the first quarter of 2009.

Introduced in November 2005, the Promise was designed to stimulate Kalamazoo’s economy and lure both business and people back to the city. It covers 65% of tuition costs at public colleges and universities in Michigan for students who spend at least their high school years in the Kalamazoo Public School district. Students who go all the way from kindergarten through 12th grade get a free ride. Bills are paid by the program directly to the college. Roughly 1,200 students have taken advantage of the program so far.

Education’s Draw

• The Problem: Businesses and people were leaving Kalamazoo, a city in western Michigan hard-hit by job cuts.
• The Economic Game Plan: A group of philanthropists promised at least partial college tuition to graduating seniors who spent their high-school years in the city’s public school system.
• The Results So Far: Job growth, home building and a rise in school enrollment point to a rebirth in Kalamazoo.

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• See the complete Economic Development report.

Signs of Rebirth

“What we had here was a traditional inner city that was dying,” says Ron Kitchens, chief executive of Southwest Michigan First, a regional economic-development organization. “We had the traditional institutions like hospitals, schools and museums, but the population was leaving and those that remained were paying more taxes.”

Kalamazoo sits in western Michigan, a state that led the nation last year in unemployment as auto companies cut jobs amid slumping sales. Michigan’s unemployment rate was 7.2%, compared with the national average of 4.6%. The Kalamazoo area has been hard hit by job cuts at one of its largest employers, drug maker Pfizer Inc.

Since July 2005, the company has eliminated 2,000 high-paying research jobs, reducing its staff in the area to less than 3,000.

Over the past 18 months, however, Kalamazoo has shown some signs of a rebirth. Four-hundred families from 88 Michigan communities, 32 states and nine foreign countries have moved into the Kalamazoo school district, boosting school enrollment 12% to 11,530 this year from 10,337 in 2005. Graduation rates have risen, too, jumping 21% to 567 students in 2007 from 467 students in 2005. (The district reports 485 graduates so far for 2008, but the finally tally won’t be known until summer school is over.)

Other companies besides Kaiser have unveiled plans to create jobs in Kalamazoo, with some saying the Promise played a role in their decision. Among them is MPI Research, a privately held preclinical drug-testing company in Mattawan, Mich., which in April announced plans to create 3,300 jobs in southwestern Michigan — including 400 in downtown Kalamazoo — over the next five years as it moves into laboratory and office space once housing Pfizer.

Fabri-Kal Corp., a Kalamazoo producer of custom and food-service plastic products, is expected to create 160 jobs by expanding and relocating its current manufacturing operations to a vacant Mead Paper facility located southeast of downtown Kalamazoo. Other expansions or new business openings include W. Soule & Co., a stainless-steel fabrication business employing 25 people; Tourney Consulting Group, a concrete testing lab employing 12 people; and Polymer Solutions Inc., a plastics recycling company with 50 workers.

“We are experiencing job growth and families are moving back and stabilizing the area,” Mr. Kitchens says.

The Promise also has turned the Kalamazoo School District into a hot spot for real estate.

Home builder Greg DeHaan, co-owner of Allen Edwin Homes, hadn’t built a home in the Kalamazoo School District in the 12 years before the Promise was announced. Now, home sales in the district account for 20% of Allen Edwin’s overall business, with the company building and selling 87 homes last year, compared with 47 the year before. The average home price is $130,000 to $140,000.

“The Promise has just given us this renewed sense of optimism,” says Mr. DeHaan, who grew up in Kalamazoo.

It also has brought educated people into Kalamazoo, sometimes from across the country.

Efeosa Idemudia was working as a personal banker at a J.P. Morgan Chase & Co. bank branch in New York and was preparing to buy an $800,000 home in Brooklyn when he saw an evening newscast about the Promise.

Not sure he could believe the report, he used his TiVo digital video recorder to review the broadcast, spotted a telephone number on a real-estate sign and was out looking for homes in Kalamazoo a few weeks later. “I told my wife we are out of here,” Mr. Idemudia says.

Kalamazoo Promise

COLLEGE-BOUND These recipients of Kalamazoo Promise scholarships attended Kalamazoo Central High School

He now lives in the Kalamazoo School District, which means the college tuition for his 7-year-old son, 3-year-old daughter and 1-year-old son will be covered when they graduate from high school.

“When I went to college I had to work a full-time job and go to school,” says Mr. Idemudia, who is now a Kalamazoo-based consultant with Pre-Paid Legal Services Inc., a network of independent law firms providing services at low costs. “I want my kids to focus on their education so they can do a whole lot better than I did.”

Copying the Formula

While the developments bode well for Kalamazoo, it is too early to tell if the Promise will have a major, long-term impact on the area’s economy, says Michelle Miller-Adams, a Grand Valley State University assistant professor and visiting scholar at the not-for-profit W.E. Upjohn Institute for Employment Research in Kalamazoo.

For that to happen, other big companies with high-paying jobs will have to follow Kaiser’s path, says Ms. Miller-Adams, who is writing a book about the Promise.

“I wish I could say the economy is turned around but I can’t say that yet,” she says. “Economic changes take the longest to materialize.”

Still, a growing number of groups throughout the country are betting Kalamazoo has the right formula. Inspired by Kalamazoo, Murphy Oil Corp.

announced in January 2007 that it would put up $5 million a year for the next 10 years to provide college scholarships to public high-school graduates in El Dorado, Ark., where the company is based.

Students who participate in the “El Dorado Promise” can use the scholarship at any Arkansas or out-of-state college. Scholarships are capped at $6,010 and funds are paid directly to the institutions. After a 20-year decline, enrollment rose 3% in the El Dorado school district for the 2007-2008 year.

Groups in Peoria, Ill., Denver, and Pittsburgh are trying to craft similar programs. Last month, the Upjohn Institute sponsored a meeting in Kalamazoo that brought together 200 people representing 75 communities that have established or are interested in establishing programs similar to the Promise.

“I get about 40 to 50 calls a month asking about the Promise,” Mr. Kitchens says. “Right now there are about 24 different communities that have similar programs.”

The increased focus on education also has spilled over into surrounding communities such as Portage, which passed a $119 million bond last year, its largest ever, to build and remodel schools. Portage, which has about 9,000 students in its school district, is located about 10 miles south of Kalamazoo.

The money will be used to build two new elementary schools, one high school and remodel a second high school. In the early 1990s, the district tried to pass a $50 million bond, which at that time was the largest ever to be proposed. It failed.

“We may have not talked about the Promise to get the bond passed, but it was the elephant in the room,” says Tom Vance, community-relations manager for the Portage Public School District.

Growing pains have accompanied the influx of people into Kalamazoo, forcing organizations and volunteers to stretch their already limited resources and time, Ms. Miller-Adams says.

“The Promise is generous in that it pays for tuition, but some families need help to buy college materials such as textbooks,” she says. “There is also no new money to deal with the increase in [school] enrollment, and volunteers also have been needed to run meetings that teach students how to prepare for college.”

As the community grapples with these issues and the initial wave of enthusiasm subsides, Mr. Kitchens says community leaders have a new goal — keeping the educated in Kalamazoo. Among other things, Southwest Michigan First started a program offering internships at local companies.

“We have 40,000 college students right now. If we can keep them here, companies and entrepreneurs will build around them, and then we can become a community of promise,” Mr. Kitchens says.

—Mr. Bennett is a staff reporter for Dow Jones Newswires in Chicago.

Write to Jeff Bennett at jeff.bennett@dowjones.com

Corrections and Amplifications:

Portage, Mich., shares a border with Kalamazoo. This article incorrectly said the two cities are 10 miles apart.

Printed in The Wall Street Journal, page R1

By GORDON FAIRCLOUGH And SEAN CARNEY

PRAGUE—As the tour bus rolled to a stop across from a modern, concrete-and-glass house here, guide Justin Svoboda told his group: “This one’s very interesting.”

Not the architecture so much, but the occupant, Czech businessman Roman Janousek, who is mired in an influence-peddling scandal involving the Prague city government. “Feel free to take pictures,” Mr. Svoboda said.

Petr Sourek

The home was the fourth stop on the so-called Prague Crony Safari, an excursion organized by CorruptTour, a small operation that earlier this year started offering sightseeing trips to places associated with alleged dirty dealing. Executives’ villas, public hospitals, you name it.

“I’m disgusted by corruption,” said Jan Gregor, a 22-year-old college student who went on the tour with his girlfriend one recent Saturday afternoon. It is “a disgrace for the Czech Republic.” As for Mr. Janousek’s house, he said, “It’s the height of bad taste and arrogance.”

To legions of foreign tourists who flock to Prague every year, the Czech capital is best known for its wealth of historic medieval and baroque buildings. But for many outraged locals, it has become more famous for political sleaze. Marianske Square, home to City Hall, is often referred to these days as Mafianske Square.

Curious Czechs have snapped up seats on the CorruptTour expeditions, as public tolerance wanes for corruption, something once viewed as an unavoidable fact of political life, but now increasingly being dragged into the light and condemned.

The tours, which started in February, are the brainchild of Petr Sourek, a 37-year-old professional translator specializing in cultural events and art exhibits, who said he came up with the idea last year after reading yet another story about alleged wrongdoing by politicians.

“Corruption is everywhere. So, I thought, let’s use it as the raw material for a business,” Mr. Sourek said. “It has really captured the Zeitgeist.”

Indeed, across Central and Eastern Europe, anger is boiling over among voters appalled at continuing allegations of graft as widespread budget cutting has hit pensions, health care and other government services.

Corruption scandals have caused political upheaval recently in Slovakia, Romania and Croatia, where former Prime Minister Ivo Sanader pleaded not guilty last month to charges of embezzling millions of dollars of state funds.

“People are so frustrated,” said Miklos Marschall, deputy managing director of Transparency International, a nonprofit group that fights corruption.

The kind of petty bribery once common in the former Communist Bloc, where citizens often had to pay to grease the wheels of government or get access to goods, has decreased sharply. But it is thriving at “the level where big business meets the state,” Mr. Marschall said. “The stakes are much bigger.”

CorruptTour seems unlikely to run out of material soon, in a country where the scandals often veer into soap-opera territory.

On Monday, the governor of the Central Bohemia region was arrested in a police sting operation while carrying a box stuffed with seven million Czech koruna, or about $350,000. The official, David Rath, was charged with accepting bribes.

On Wednesday, Mr. Rath stepped down from the governorship but denied wrongdoing, saying in a statement that he thought the box contained wine. “I’m now concerned only with uncovering the truth about what happened and who’s behind it,” he said.

Then there is the case of Mr. Janousek, the businessman whose modern concrete villa is a stop on the Prague Crony Safari.

Earlier this year, leading daily newspaper Mlada Fronta published transcripts of what it said were secretly recorded phone conversations between Mr. Janousek and the then mayor of Prague, Pavel Bem, and other city officials. In the calls, the men discussed everything from the sale of city assets to who should head the Prague branch of the state health insurer, according to the paper.

Mr. Janousek and Mr. Bem have declined to confirm or deny the transcripts’ authenticity. A special committee of the Czech Parliament has been charged with determining the source of the tapes and whether they are genuine. Neither Mr. Janousek nor Mr. Bem has been charged with any wrongdoing in connection with the conversations.

In the transcripts, Mlada Fronta reported, Mr. Bem addressed Mr. Janousek as “you hummingbird” and “my little buddy.” For many Czechs, the tapes have been seen as confirmation of the role played by Mr. Janousek, who is referred to widely in local media as the godfather of Prague or by the nickname Voldemort, after the Harry Potter villain.

After the news broke and pressure mounted on Mr. Janousek, police said he crashed his Porsche Cayenne into another car, then ran into its driver as she tried to prevent him from leaving the scene. When another bystander intervened, Mr. Janousek took off on foot. His flight was captured on video and has become a YouTube hit with Czechs.

Police have charged Mr. Janousek with drunken driving and inflicting grievous bodily harm. Police were assigned to guard the hospital room of the woman Mr. Janousek is accused of harming, a member of the city’s Vietnamese community, after Vietnamese leaders said they feared she would be attacked in retribution.

Mr. Janousek told reporters who showed up at the scene that he was “under stress,” apologized and offered compensation to the woman. Mr. Janousek’s lawyer didn’t respond to a request for comment.

Mr. Bem, the former mayor, has repeatedly insisted that Mr. Janousek is merely an acquaintance and didn’t improperly influence the city. A former deputy chairman of the Civic Democrats, the political party of current Czech Prime Minister Petr Necas, Mr. Bem says he will give up his seat in Parliament if he is found to have broken the law.

At first, “people had trouble believing we could really just fill the bus and head to a place like Mr. Janousek’s villa,” said Mr. Sourek, the CorruptTour founder, attributing the reluctance to the country’s communist history, which has left a legacy of fear about challenging those in power.

These days, the tours, which cost about $10 a head, are often sold out. University political-economy classes have signed up. So have foreigners. CorruptTour is now offering special excursions in English and German. And a Slovak company is interested in working with CorruptTour to start a program in its country, Mr. Sourek said.

There has been some pushback. After an anonymous complaint, Prague authorities turned up to check CorruptTours business-registration documents to see whether the company’s papers were in order, Mr. Sourek said. They were, he said. And a hospital featured on one tour has barred the company from entering its grounds, Mr. Sourek said.

Prague’s current mayor, Bohuslav Svoboda, a physician who succeeded Mr. Bem in 2010, said he isn’t happy with the attention CorruptTour is focusing on City Hall and its projects. “But, if we shut our door to them, we’d only show that nothing is going to change here,” Mr. Svoboda said. “I personally look forward to being able to organize tours no longer called CorruptTour, but called Anticorrupt Tour. That is what I wish.”

—Leos Rousek contributed to this article.

Write to Gordon Fairclough at gordon.fairclough@wsj.com and Sean Carney at sean.carney@dowjones.com

By RAJEEV MANTRI

Venture capitalists add value to an enterprise at many levels and are not just financial investors. Good venture capitalists invest in smart entrepreneurs and big opportunities, and also bring to the table their network of relationships and connections. India is a preferred investment destination among emerging markets and has oodles of bright and hungry entrepreneurs who have built world-class companies across industries.

Rajeev Mantri

However, a culture of serial entrepreneurship and mobility of entrepreneurial talent across business sectors is absent. India’s social structure tends to promote business activity between people of the same community, and social class and family birth also influence one’s vocation, resulting in a dearth of what economists call “social capital.”

In the entrepreneurship and startup world, it’s common to hear people talk enthusiastically about “developing the ecosystem,” which is the same as creating social capital. Early-stage venture investing remains very risky and difficult despite the fact that India is burgeoning with first-rate entrepreneurs. I think this is because of the dearth of social capital – social networks in India are centered around family and identity. A culture of trust which encourages cooperation and profit-motivated, self-interested action has only just begun to take root.

Dynastic succession is one of the most pervasive and curious characteristics of Indian society, and can be befuddling to a casual observer. Whether it is business, politics, the fine arts or Bollywood, children inevitably do what their parents did, often with strenuous consequences for both the family and society. Some 3000 years have passed since the great war of Kurukshetra took place between the Pandavas and Kauravas to resolve a disagreement over succession and inheritance, and history continues to rhyme.

Lateral entry into a vocation outside the purview of one’s family and identity remains difficult. As Warren Buffett might put it, capital allocation in India is determined by the “lucky sperm club,” those who are born in certain families and communities.

Dynastic succession is not the most efficient way to allocate human capital. A poet who could have been an effective politician doesn’t necessarily make that choice, and a financier who could have made a better writer doesn’t pick that path. Talent ends up being sacrificed at the altar of societal norm, precisely because the opportunities for realizing one’s potential in “other” fields are very limited. In economist-speak, a Nash equilibrium exists and the net effect is that society becomes inertial and innovation is stifled.

“Not being able to exit even if they want to means that instead of entrepreneurs owning their company, the company owns them.”

The more social capital India can form, the faster the rate of innovation and idea exchange and ultimately, positive change – and this applies as much to politics and Bollywood, as it does to the startup world. We can be sure that such change will be positive because open and vibrant ecosystems allocate resources far more optimally and democratically than the almost-feudal system in existence today.

How can India create social capital? At the macro level, market competition creates social capital and trust. India is notorious among investment bankers for its low domestic mergers and acquisitions activity relative to the size of its economy, and it’s uncommon for small and medium-sized companies to sell themselves to larger competitors. Alok Kejriwal, entrepreneur and founder of Internet company Contests2win.com, recently told me that the absence of markets that encourage M&A and dearth of liquidity events can be a serious innovation-killer. Entrepreneurs who can’t get a good price for their company won’t sell, and pricing is distorted because of shallow markets and an inertial system that rewards continuity rather than change.

Not being able to exit even if they want to means that instead of entrepreneurs owning their company, the company owns them.

The antidote is meaningful economic reforms, which reward productivity gains and encourage competition. India’s legal and economic structures promote inertia, rather than productivity and fluidity. Bollywood, which was recognized as an industry by the BJP-led NDA government in 1998, is one of the most visible and least talked about success stories to benefit from pro-market policy.

In the last decade, the film industry has become more organized and corporatized. Access to finance has reduced the influence of criminal elements and the infamous underworld. New talent has emerged and an industry which was once dominated by a few families is now far more democratic. Increased efficiency in movie production, distribution and marketing have grown the market for all and it has become possible to produce and release small-budget films which would have otherwise been commercially unviable.

This growth can be replicated in other sectors. The Congress-led UPA government has reiterated its commitment on this front, but the question is whether it will actually do enough, or hide behind the excuse of protecting India’s “mango people” once again.

At the micro level, the best way to create social capital is to pursue one’s dreams and ambitions, even if it seems difficult or impossible at first. Getting out of one’s comfort zone and trying new things, forming groups and organizations where none exist, and bringing together like-minded people whose values and ideas are aligned, though seemingly innocuous, can be deeply transformational. The generation of Indians that grew up through the watershed economic reforms of 1991 and the reform efforts of the NDA government from 1999-2004 is now coming of age. As has been captured by movies and popular culture, this generation is more confident, assertive and aspirational. Global investors and India’s “mango people” alike would be better off if they create social capital to dramatically alter India’s curious cultural calculus.

—Rajeev Mantri is executive director of Navam Capital, a Kolkata-based venture capital firm.