Early childhood development = Sustainable Economic development

There is nothing like a budget deficit to focus attention on how a state appropriates its public funds. Suddenly, such old-fashioned economic ideas like trade-offs and opportunity cost are in vogue as public officials and citizens ask themselves the question: What is the best use of our limited resources?

By Rob Grunewald, Regional Economic Analyst
and Art Rolnick, Senior Vice President and Director of Research
Federal Reserve Bank of Minneapolis

That question is always pertinent, of course, but when times are flush there is a tendency to disregard the word “limited” and make optimistic assumptions about the future level of resources. We can’t do that today. Thus, there is no time like the present for Minnesotans to take a hard look at how they spend their limited public revenue. Choices made today will have a lasting impact on our quality of life, even after good times return; indeed, current choices will likely impact just how good those days become.

This is especially true when we talk about economic development. The current budget troubles come on the heels of a recent debate about the best way to ensure that Minnesota’s economy continues to grow. Many have suggested that the state’s economy is in need of repair, and that we need to prepare for changes in the economy. Advocates have called for government to establish venture capital funds, to subsidize new industries like high-tech and biotech, to build new stadiums, to grant more special favors so businesses can move from one community to another and to turn the University of Minnesota into a research arm of local industry.

None of those plans makes economic sense; that is, research has shown that government involvement in private business is, at best, a zero-sum game, and many times the returns are actually negative. You can’t help the state’s economy by moving jobs from one town to another, or by trying to guess the latest tech craze, or by gambling funds on risky venture deals, or by turning one of the country’s best research universities into a patent office.

What can we do? We can invest in early childhood development programs. These programs are rarely viewed within the context of economic development, but we think that is a mistake.

The economic returns to education, both for students and for society, are well documented, and Minnesota has certainly benefited from its historical emphasis on a quality education for all children. Our state has one of the most successful economies in the country because it has one of the most educated workforces. In 2000, almost a third of persons 25 or older in Minnesota held at least a bachelor’s degree, the sixth highest rate in the nation, and our K-12 test scores consistently rank us among the elite states.

But these statistics mask a starker reality for an estimated 20,000 3- and 4-year-old children living in poverty throughout the state—in rural communities, larger towns and in the metro areas. These children often enter kindergarten without fundamental reading or language skills. These children begin at a disadvantage and they never catch up. They are destined for low-skill, low-paying jobs, and many will experience trouble in school and with the law.

These disadvantaged children are not only shut out from Minnesota’s famed high quality of life, but they also impose social costs on the rest of society. And that’s where the budget and economic development come into play. Research has shown that investment in early childhood development programs brings a real (that is, inflation adjusted) public return of 12 percent and a real total return, public and private, of 16 percent. We are unaware of any other economic development effort that has such a public return, and yet early childhood development is rarely viewed in economic development terms.

It is time for Minnesota to put its money where the return is: Prepare our disadvantaged children for a successful education and the opportunity for personal achievement. We should create a foundation for early childhood development.

This idea isn’t new. Minnesota has spent millions on Early Childhood Family Education, School Readiness and Head Start programs. The problem is, the programs are substantially underfunded. They do not reach all children from low-income families; for example, only half of eligible children receive Head Start services. Furthermore, most of these programs don’t have the resources to provide the level of quality required to produce the demonstrated high return on investment.
Some will argue that middle class children would also benefit from such programs. But again, when it comes to return on investment, the highest return comes from investing in financially disadvantaged children.

Of course there is no free lunch, as economists are so fond of saying. A dedicated program open to all poor children across the state won’t come cheap, but on the other hand, it’s only about the cost of two or three sports stadiums. With an endowment of $1.5 billion—gathered from government and private sources over a five-year period—a foundation could fund high-quality, targeted programs to reach 20,000 disadvantaged children annually.

In practice, it would be almost impossible to reach every needy child in the state because such a program would depend on the willingness of parents to participate. But educating parents and giving them proper incentive would be part of the funding strategy.

This idea is based on solid research and similar programs that have proven successful in other parts of the country. Finally, many in Minnesota—including some in the Legislature—are committed to early childhood development and some are already working toward these goals.

Minnesota has a chance, even in tough budgetary times, to make proper use of its limited public resources—invest those resources where they can get the best possible public return, which is the correct way to evaluate economic development.

A version of this opinion piece appeared in the Minneapolis StarTribune, Feb. 6. See the full text and tables of Rolnick and Grunewald’s proposal.

(Many have said it but I’ll repeat it here: "The State with the Best Education Wins!" Is Montana learning? – Russ)

http://minneapolisfed.org/pubs/fedgaz/03-03/opinion.cfm