Economists say money put
toward early-childhood programs offers great returns and may be the best
form of economic development out there. by Maja Beckstrom, Pioneer Press, October 24, 2003
Art Rolnick wants to sell you an economic development plan. It's not a
tax-free business zone. Not a stadium. Not a coal gasification plant on
the Iron Range.
It's preschool. For all low-income kids in Minnesota.
The idea itself isn't new, but fresh evidence and surprising new
heavyweights back it up. Rolnick, after all, is head of research at the
Minneapolis Federal Reserve Bank.
Milton Friedman, meet Maria Montessori. Advocates of early-childhood
education have a new ally — the economists.
Proponents of better day care and public preschools rely on people's urge
to do right by kids. The money guys see it as a matter of dollars and
cents. Investing money in early-childhood programs is perhaps the best
form of economic development there is, they say — with annual returns that
can exceed the stock market's — and can result in more savings to society
than any other social program.
The argument for investing in kids got a boost earlier this month at a
conference hosted by the Minneapolis Fed.
It was an unusual gathering for early-childhood advocates. Participants
heard about new research calculating the costs and benefits of preschool
programs. A Nobel Prize-winning economist told them early-childhood
interventions are the most cost-effective way to develop human capital.
"It's a real shot in the arm for the early-childhood community," said Todd
Otis, director of Ready 4K, who, like other advocates, watched with dismay
as the Minnesota Legislature last session cut 15 percent from
early-childhood programs like Head Start and School Readiness. "But this
economic argument is all very new. So, I can't say the Legislature has
changed its behavior yet."
A good preschool can offer a 12 percent annual return, after inflation,
according to Rolnick, who has received national attention for a paper he
published last spring on the topic with Minneapolis Fed analyst Rob
Grunewald. That's better than the stock market, he notes, and any other
social program.
KID SUBSIDIES OVER CORPORATE SUBSIDIES
Rolnick arrived at his interest in early-childhood programs via the
Northwest Airlines controversy. In 1991, the company asked the state of
Minnesota for a $500,000 loan. Rolnick criticized the deal as a bad public
investment and continued to speak out against other subsidies to private
companies, such as sports teams and software firms.
That got him to thinking about what really would spur economic growth.
After reading the literature, he became a believer in early-childhood
development.
"You have a lot of politicians selling you economic snake oil," said
Rolnick. "They're luring a business or factory from a neighbor's economy,
and that's not economic development. Investing in human capital is
economic development. And you get the most payoff the earlier you invest."
Rolnick has been invited to present his paper across the country before
philanthropic foundations, businesses and educators, and he has been
contacted by a couple of presidential candidates. This month, he hosted
the conference to put his economic argument before a wider audience. The
star attraction was James Heckman, a University of Chicago economist who
won the Nobel Prize in 2000.
Heckman is widely respected as the world's leading researcher on how to
evaluate labor-market programs, such as job training for unskilled
workers. He has concluded that such programs result in few if any benefits
to participants and that the programs' costs are greater than their
benefits to society. So, he asked, what kind of training would get you the
biggest bang for your buck?
Like Rolnick, Heckman's research led him backward down the life cycle.
"There is a lot of evidence for a high rate of return on investments at an
early age and for a fairly lower rate of return on investments at older
ages," Heckman told an audience of about 100 people at the Minneapolis
Fed, as the red blip of his laser pointer bounced across mind-boggling
economic formulas projected onto a movie-size screen.
He emphasized the importance of noncognitive skills, like discipline and
social skills, which are often ignored by economists and educators in
favor of test scores. The best time to nurture those abilities is in early
childhood.
COST COMPARISONS
Heckman is supported by research that calculates the cost-to-benefit
ratios of investing in preschool programs. Two important studies were
published within the past year.
The longest running is the Perry Preschool Project in Ypsilanti, Mich.
Researchers followed 123 low-income 3- and 4-year-olds who were enrolled
in the half-day program in the 1960s. Teachers were certified and paid 10
percent more than local public-school teachers. Families received home
visits.
There were short-term gains in IQ test scores that faded in elementary
school. But gains in social and emotional skills, the kind Heckman
emphasizes, lasted into adulthood.
• By age 27, more than a third of the children who attended the Perry
program owned their own homes, compared with 7 percent of the control
group.
• Four times as many Perry students were earning at least $2,000 a month
compared with the control group.
• Two-thirds of the former Perry kids graduated from high school on time,
compared with less than half of the control group.
• Only 15 percent of the Perry kids required special-education services,
compared with more than a third of the control group.
• The Perry group was also less likely to receive welfare or be arrested
for a crime, and the women were five times as likely to be married and
less likely to have out-of-wedlock births.
The total program cost is $15,000 a child in 2002 dollars, according to
Steven Barnett, an economist and director of the National Institute for
Early Education Research at Rutgers University in New Jersey. To calculate
the cost-to-benefit ratio, researchers estimated the savings to schools,
the criminal justice system, welfare and crime victims and added those to
estimated future earnings and taxes paid by the Perry group.
Turns out it's a bargain. The benefit to society in 2002 dollars is
$145,000 over the child's lifetime (for you economists, that's discounted
at 3 percent). In other words, for every dollar invested, you get back
$9.66.
THE BIGGER PICTURE
But would you see the same results if you replicated the Perry project on
a larger scale? That was the question policy-makers wanted answered.
Findings from the Chicago Parent Child Centers study, which were published
in late 2002, seem to show you could. It is the first formal study of a
public preschool program in a large urban school district serving some of
the poorest neighborhoods in the country. For every dollar invested, the
program returns between $7 and $8.
Researchers in Chicago followed about 1,300 children who were enrolled in
the half-day preschool for an average of a year and a half. Again, the
children enrolled in the preschool were more likely to graduate from high
school and less likely to repeat a grade, require special-education
services or be arrested for a crime.
"No other social program has the evidence to show this level of savings to
society," said Arthur Reynolds, the study's author.
A third study of 111 children enrolled in the Abecedarian Project in North
Carolina showed less dramatic savings, largely because it was more
expensive. It offered full-time, year-round care from birth to age 5. But
it showed benefits beyond those found in the other two studies, including
long-term gains in IQ, lower rates of smoking by age 21 and startling
numbers about college: More than a third of participants attended some
college, compared with 13 percent of the control group.
"In some sense, it's the free lunch Milton Friedman was always saying that
you can't have," said Barnett. Economists have traditionally said you
can't expand the economy and share the wealth more equitably.
"It was always viewed as either/or: 'Do you want to make the pie bigger or
make the pieces of the pies more equal?' " said Barnett. "Preschool makes
it possible to get a bigger pie and, at the same time, make the pieces
more even. I don't know of any other public investments that could do the
same thing."
BUDGET TALKS
The economic arguments for investments in early-childhood education come
at a time when the federal government is considering dramatic changes to
Head Start, the federal preschool program that serves low-income children.
It has never been fully funded and serves about two-thirds of eligible
children. At the state level, Minnesota cut its early-childhood
investments by 15 percent last session to help balance the budget after
very small increases during the flush years of the late 1990s.
Still, supporters of early-childhood development say the money should be
found to expand these programs, even in tight fiscal times.
"You could transform Head Start nationally and provide the same kind of
educational quality that the Chicago study did for less than a couple
billion dollars a year," said Janet Currie, a University of California-Los
Angeles economist who has published studies of Head Start showing
long-term positive outcomes, even at its current funding level. The
economists said that's a drop in the bucket compared with what we're
spending in Iraq, on cotton subsidies and on ethanol research, for
example.
Rolnick wants to start in Minnesota with a foundation to fund
early-childhood programs. A $1.25 billion endowment from the private and
public sectors would generate enough interest to give every low-income
child in the state a high-quality preschool experience.
"That's roughly the cost of two stadiums," said Rolnick. "And you notice
the stadium guys aren't bashful to ask for money even in this budget
climate. So, at least we should be at the table with them. Our return is
much higher."
