(FORTUNE Magazine) – STEVE JOBS remembers vividly the day he began to understand supply and demand. As a 12-year-old visitor to a NASA research center, he started fiddling on a computer with a game called King Hammurabi, in which the player rules over an imaginary kingdom for ten years. Weighty decisions were called for: how much grain to grow, how much money to spend on soldiers, how high to raise taxes. Jobs found if he fed people well, the population grew. But if he didn't store enough grain and was hit by a drought -- trouble. Says Jobs, who graduated from playing videogames to co-founding Apple Computer and then starting Next Inc.: ''You're learning the underlying principles of macroeconomic theory, and it's a blast.'' Two decades later, most educators have come to believe that computers can utterly transform the way children are taught. Why? Because they make learning fun for children raised on Sesame Street, Nintendo, and MTV. Says Gordon Brown, retired dean of engineering at MIT: ''Competition for kids' interest today is fantastic, so in school they are bored to death.'' Added benefits: Computer-based learning is active, not passive, and promotes the skills business says it values most -- problem solving, teamwork, and familiarity with technology. Corporations from AT&T to Lockheed are donating equipment and helping teachers tap the power of technology. Now students can plug into distant databases, communicate with schools abroad, simulate moon landings, and watch John F. Kennedy being sworn in as President. Leading the electronic bandwagon are Apple and IBM. Apple has provided over $60 million in computers and equipment to schools since 1979 and spends millions more each year researching the impact of technology on teaching and learning. Over the same period, IBM has donated $50 million in computers and training, and plans to spend another $50 million over the next five years. Mattel recently started giving computers to learning-disabled students in Los Angeles in what it expects to expand into a nationwide program. Thanks to Southern New England Telephone, teachers in Connecticut are communicating with parents through a voice-mail system. Want to see a classroom of the future? Step inside Frank Draper's exuberant eighth-grade life sciences class at Orange Grove Middle School in Tucson, Arizona. Students sit in pairs, each twosome sharing both an Apple-donated Macintosh and a science project. Draper roams from desk to desk, answering questions, offering advice, and acting as a coach. Josh Hagan and Adam Harant have just designed a 1,132-square-foot energy- efficient house, located in a deciduous forest. After researching energy conservation techniques, the boys specified concrete construction with 12 inches of fiberglass insulation and ultra-low-flush toilets to save water. A simulation shows that to keep the thermostat at 69 degrees all year, the boys will have to spend $3,000 on heating and cooling costs. They decide to cut their energy bills by removing a few windows and adding more ceiling insulation -- changes that keep them within their $100,000 budget. ''This takes a lot of thinking,'' says Josh. ''But it's so much fun, you want to work on it during lunch.'' In Draper's class computers do amazing things, such as figure a year's energy consumption in five seconds. Most teachers, however, still use the machines primarily to drill and practice the basics: reading, writing, and math. Artificial intelligence techniques could soon make computer instruction more effective. Intelligent tutoring systems, which analyze a student's problem-solving process, can sense when the child is having trouble and offer advice. Los Angeles investment banker and philanthropist Richard Riordan, 60, has become sort of a modern-day Music Man, hoping to solve the trouble in Education City by showering schools with computers. Why? Says he: ''Because they work.'' Having reviewed scores of programs that teach young children, Riordan has become a champion of IBM's Writing to Read. The software, now in use in 5,000 schools nationwide, first encourages children to write words the way they sound -- ''kat'' or ''thru'' -- and later pairs the words with the correct spellings. Two years ago Riordan got a call from Mississippi Governor Ray Mabus, who expressed his desire that every child in the state read and write by the end of first grade. Last November, Mississippi kicked off a $13 million five-year program to install Writing to Read labs in every kindergarten and first grade in the state by 1993. Riordan and his childhood buddy Richard Dowling, president of RORD Foundation in New York, donated $1.5 million to the project and pledged another $5.5 million; the legislature agreed to kick in the remaining $6 million. BY ALLOWING children to progress at their own pace, providing immediate feedback, and not passing judgment on slow learners, computers can be particularly helpful in teaching learning-disabled youngsters. Says Karen McMahon, who teaches such students at Jefferson Elementary School in a poor Hispanic neighborhood in Los Angeles: ''The computer is much more patient than I am. I'm also not as motivating. They think this is a game. I'm a teacher, not a game.'' Jefferson is one of five schools that received free Writing to Read labs from Mattel. As McMahon talks to a visitor, some children prance around her, showing off their work, while others run from computer to computer. At the far end of the room, Edward, 10, sits intently before a terminal, typing away. The teacher and her aides watch him in amazement; while Edward is a good reader, they haven't been able to get him to write a word. A peek at the screen reveals a well-organized essay describing a recent class trip to a restaurant. It concludes: ''Mrs. McMahon is the best teacher you could have. If you do, you will be lucky.'' Computers can supplement, but never substitute for, a good teacher. Critics once worried that technology would isolate students from each other and the teacher; just the opposite has proved true. Television and telecommunications are connecting classroom teachers with one another, and inner-city schools and rural districts are linking up with the outside world. For example, both Whittle Communications and the Cable News Network offer lively, colorful daily news programs for high school students. Whittle's 12- minute program, Channel One, is controversial because it includes two minutes of commercials; schools like it because Whittle, which is 50% owned by Time Warner, the parent of FORTUNE's publisher, throws in free TV monitors, VCRs, wiring, and satellite dishes as part of the deal. Ted Turner's 15-minute CNN Newsroom comes free of advertising but free of equipment as well. In Connecticut, telecommunications is promoting parental involvement in the schools. For the past two years, 34 schools have been participating in a trial program called SNET Links to Learning, developed by Southern New England Telephone in cooperation with the state department of education. A popular feature is VoiceLink, which encourages teachers to keep in touch with parents by voice mail. Teachers in most schools communicate with parents primarily through written notes that end up at the bottom of the book bag. With voice mail, the teacher can record individual messages for each parent during lunch or after class, and the parents can respond when they have time. They just pick up their Touch-Tone phone, dial a central number, and then punch in a personal identification code to get a message or leave one. Joan Heffernan, a teacher at Buckingham Elementary School in Norwich, says she used to talk to parents once a year at parents' night. Now she commonly has as many as ten messages waiting for her at the end of the day. Because the SNET experiment will be over in June, Heffernan is frantically applying for grants so that the school can keep the VoiceLink system. Says she: ''I've become very dependent on it.'' Telecommunications also brings advanced science and math to rural students, like those at West County High School in Leadwood, Missouri, a relatively poor town 70 miles south of St. Louis. Three years ago Leadwood installed a $9,000 satellite dish so that the school could receive such programs as scientific lectures sponsored by Talcott Mountain Science Center in Avon, Connecticut. Asks school superintendent Claude Lynch: ''What's our chance of getting Neil Armstrong or Carl Sagan to come to our school?'' Imagine spending a day listening to arias from Mozart's Don Giovanni, browsing through the Louvre -- lingering over the Mona Lisa and the Venus de Milo -- and taking a trek through ancient Mayan ruins, stopping at times to inspect the most curious artifacts. Through multimedia -- a combination of interactive videodiscs, compact discs, digital audio, and laser scanners -- students can do all this and more. The enormous storage capacity of laser discs and compact disc/read-only memory devices (CD-ROMs) allows schools to house entire libraries of information that, unlike textbooks, can be updated every six months. Compton's, a subsidiary of Encyclopaedia Britannica, in conjunction with Josten's Learning Corp., offers a 26-volume talking encyclopedia on a single compact disc that includes 15,000 still pictures, animation, magazines, and charts, and lets children hear former President Richard Nixon say, ''I am not a crook.'' Cost: $895. MULTIMEDIA MAGIC is routine at Centennial High School in Corona, California. With the help of $250,000 in equipment donated by AT&T, Centennial has recently become the first school in the U.S. to install a fiber optics-based wide-band video switching system, which is capable of simultaneously transmitting high-quality video programs to up to 48 classrooms at once. Each class has a wide-screen monitor, so a teacher could show, for example, chapter six of CEL Communications Video Encyclopedia of the 20th Century. It presents TV footage of Martin Luther King's eerily prescient ''I've Been to the Mountaintop'' speech in Memphis the night before he was shot. Says Tom Wilson, director of educational technology for the Corona-Norco Unified school district: ''How can you put the charisma of Martin Luther King in a book?'' If computers are so great, why haven't they caught on even faster? Mainly because of poor hardware, software, and maintenance in the early days. Still, even with the advent of computer networks, good programming, and multimedia, questions about effectiveness linger. Reliable data on the impact of computers on student performance are scarce and mainly anecdotal. Apple is spending several million dollars a year on Apple Classrooms of Tomorrow (ACOT), a long- term research project that studies the impact of technology on teaching and learning. The company provides students and teachers in 20 U.S. classrooms with computers for school and home use, and funds university researchers to study the ACOT classrooms. Preliminary results have been generally positive: ACOT beneficiaries appear to be better writers and more independent learners than students without such computer access. But evaluators caution that ACOT schools are too high tech to represent the average school. In fact, one researcher, Steven Ross at Memphis State University, has shown that many students who leave the ACOT program and return to classes without computers lose their educational edge. Says Ross: ''When you give somebody a car and take it away, it doesn't mean that person can walk faster. The idea that the computer is going to change a child cognitively needs further support.'' Designing software for the education market continues to be tricky. Complex pedagogical issues emerge. Will computers make students lazy? What skills does a child really need to know? Must he learn to draw a graph, or just to interpret one? Says Apple researcher Wayne Grant, who is currently grappling with such issues: ''With matches, we lost the skill of building a fire by rubbing two sticks together. But I'm not sure that's a skill we need to preserve.'' Even dicier: how to test what the student has learned. Today's standardized tests, like the SATs often required for college entrance, do not measure the skills computers supposedly teach, such as critical thinking. The Educational Testing Service has committed $38 million over five years to develop computer-based testing tools.

Even the most sophisticated hardware and software programs are useless if teachers do not know how to use them. According to the Office of Technology Assessment, only one-third of elementary- and secondary-school teachers have had as much as ten hours of computer training. IBM has responded by establishing a $25 million program that awards some $200,000 to colleges that come up with innovative ways to bring teachers up to speed on classroom technology. So far 75 schools have received grants. For its part, Apple has formed the Christopher Columbus Consortium, a partnership of six school districts and six colleges of education, to explore ways of using technology to improve classroom instruction. The company has given more than $2 million of equipment to the group, with the stipulation that it must match the gift dollar for dollar. A serious worry about the computerization of the classroom: It will widen the gap between the haves and have-nots. In its study, the Office of Technology Assessment found that students in poor schools have less access to computers than their peers in richer schools have, and that blacks have less access than whites. In a recent computer competency test conducted by the Educational Testing Service, white students on average answered 47.6% of the questions correctly, vs. 40% for Hispanics and 39.9% for blacks. Still, the biggest barrier to a technological revolution in the schools is cost. American schools have only one computer for every 30 students. To reduce that ratio to 1 to 3, the Office of Technology Assessment estimates that the U.S. would need to spend an extra $4 billion annually for years. Corporate America is filling some of the need. Last year in California, Pacific Bell, IBM, Lockheed, and other corporations successfully lobbied the state legislature for $14 million to support technology in schools. Last September, the Cable Alliance for Education -- a consortium of 28 of the country's largest cable programmers and operators -- pledged to provide all junior and senior high schools with free cable installation and basic service by the end of 1992. What might the future bring? Jack Taub, creator of the Source, a collection of computerized databases, thinks he can dramatically lower the cost of getting computer and video programs to the classroom. Taub envisions information flowing into the schools like gas and electricity, with users paying only for what they need. Now head of a company in New York City, he has patented a system, the Education Utility, to make that happen. HERE'S HOW IT WORKS. The Utility's national computer control center in Memphis will provide access to all kinds of educational software, databases, and interactive videos. Whenever a teacher wants one of these, he simply orders it from the Utility. Overnight a satellite beams the program to the school's central computer, where it remains for as long as the school needs it. Schools pay only for the time they use the programs; the Education Utility covers the royalties to software manufacturers and other information suppliers.

If all goes according to plan, the system should pay for itself. Taub's idea is to let people in the community -- college students, small businesses, parents, local organizations -- call up programs in the central computer after school for a fee of $1.50 an hour. Revenues would be split three ways: One- third would go to the software supplier, one-third to the Utility, and one- third to the school. The school could use the money to pay for the system. The Utility will reserve part of its share to help rural schools that will have fewer community users. Taub is a missionary: ''And the Lord said, 'Thou shalt beat swords into workstations.' '' But he is a visionary too, and smart people are beginning to listen to him. Governor Bill Clinton of Arkansas thinks Taub's idea has potential, as does New York City schools chancellor Joseph Fernandez. In Arizona, the Utility is already running in a Phoenix high school and on a Navaho reservation. One day in April, Dick Lewis, a teacher from Moon Valley High School in Phoenix, was visiting the Utility's local office. Moon Valley is planning to spend some $300,000 to install the Utility; the school district projects community access fees will bring in roughly $50,000 to $70,000 per year. Lewis, 58, can't wait to get the program going; he feels that rather than reducing the role of the teacher, technology will enhance it. The thought makes him wistful. ''It's mind boggling what we'll be doing with this in four years,'' he says. ''In two years I can retire. I don't think I'm going to.''