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March 2003
Early childhood development = economic development
Rob Grunewald
Regional Economic Analyst and
Art Rolnick
Senior Vice President and Director of Research
Federal Reserve Bank of Minneapolis
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?
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.
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