Just before noon on Jan. 14, Mitch Daniels ceased to be governor of Indiana. By 2 p.m. he was in West Lafayette conducting a meeting as the soon-to-be president of Purdue University. A true Hoosier calls that a promotion. But his elevated new stage is a smaller one. And as national Republicans contemplate the second half of the Obama era, they wonder what might have been.

Daniels pronounces himself "at peace" with his decision not to run for president – the sort of thing a man says after many restless nights. "I made the right decision," he tells me. The objection of his family was "a showstopper, in and of itself." And remaining on the job as governor "allowed me to fulfill a commitment, to get some big stuff done right to the end."

Even his strongest critics don't deny that "big stuff" has been achieved. Daniels was arguably the most ambitious, effective conservative governor in America. He managed to ride a recession that bucked other leaders – balancing a series of budgets without increasing taxes. He left Indiana with a $500 million yearly surplus and $2 billion in reserves while awarding taxpayers a substantial refund on his way out the door. During eight years in office, he shed 6,800 state government jobs – 19 percent of the total – while improving public services. He passed legislation ending mandatory union dues. He created the largest school choice program for low-income parents in the country. He privatized a toll road and the state lottery, and busted cable monopolies.

In the process, Daniels demonstrated two paradoxes of conservative governance. First, it often requires a strong executive to encourage limited government. Margaret Thatcher, for example, used executive power to break up existing arrangements favorable to calcified liberalism. Daniels came into office promising a "freight train of change" directed at state bureaucracies that had grown comfortable in dysfunction and mediocrity.

Second, Daniels demonstrated that a smaller, more focused government can restore the reputation of government. Grasping, ineffective bureaucracies cultivate public disdain. Daniels is a man of libertarian leanings who improved the public standing of the Bureau of Motor Vehicles and the Department of Revenue by making them more efficient and responsive.

"I set out with two faint hopes," he says. "For a change-averse state to be a leader. And for this to be a less cynical state. Skepticism about big government is as American as can be. But we must never allow skepticism about big government to become contempt for all government. We can disagree about the scope of government activity. But a free society requires a consensus that government is operated by people of good will achieving reasonable results."

Daniels' parting observations on the state of the Republican Party are broadly consistent with a rising generation of conservative reformers. On immigration, the GOP needs an approach "that embraces those who are here, not castigates them." He remains an advocate for a "truce" on social issues – "leaving aside some irreconcilable debates to focus on a few priorities, such as the fiscal crisis" – and notes that most Republicans have implicitly adopted this approach already. And he believes Republicans should be speaking more directly to "people seeking to rise. To young people. To poor people. I never went to a GOP dinner without saying: 'We should be proud of the success of people in this room. But we really need to do something for people who would like to come to dinners like this someday.'"

Daniels is just the sort of leader most needed in a Republican revival: an upbeat, tolerant, conviction politician. A surprisingly effective, RV-cruising populist. And the most compelling GOP critic of the red menace.

"I stubbornly adhere to the view," he told me, "that Americans can be talked to like adults about the deficit problem. They can be told the pure arithmetical facts of life – the injustice that current policies are doing to the poor, the young and minorities."

But Daniels seems resigned that political arguments are no longer his to make. "I'm in a new chapter in life," he says, "and I owe all my loyalty to this place (Purdue University). This isn't a partisan endeavor, and I'm comfortable with that."

Returning quietly to private life after public service is honorable and admirable. But this doesn't change one fact. The best Democratic politician in America is about to take his oath as president of the United States. The best Republican politician will soon be president of Purdue.

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