Early Childhood Investment and the Private Sector

Posted by: Michael Mandel on September 23

When I was out in Telluride this week at the Economic Summit on Early Childhood Investment(no, please don’t show me any sympathy), I heard a very interesting talk from Congressman Jared Polis. Polis, with a long history as an entrepreneur and an education supporter, was discussing ways to get the private sector to invest in desirable social goods, such as early childhood education. His point (broadly interpreted by me) was that there is a systematic market failure: Even if the social return on investment in early childhood education is high, as the data seems to show, there’s no way for private investors to take advantage of these opportunities.

In particular, the data seems to show that improving early childhood education seems to reduce a wide variety of government expenses, including crime and prisons. Polis suggested creating securities where private investors could put money into early childhood education, and at some point in the future get a share of the cost savings. In the language of economics, he’d create private property rights in future tangible fiscal benefits from social investment (my words, not his).

This is an idea which I don’t remember having seen before. It would have two advantages. First, it would provide more money. Second, it provides a market assessment of the return on early education spending, which could guide the public sector.

I thought this was a really interesting proposal which would have broader applications than early childhood education. I’m not sure I quite get the mechanics, but we need more innovative ways of getting the private sector aligned with public issues.

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Reader Comments

Keith G

September 23, 2009 04:16 PM

It seems to me that most of these programs are currently funded through philanthropy or state and local taxes. How would property rights be claimed? The pay-off is a more productive human making a higher wage than otherwise. The mechanics on this are very hard.

James

September 23, 2009 11:11 PM

Really interesting idea, I'm not sure I agree with it. One method could be that these securities could act as a claim to some fraction of the future taxes of those individuals.

The problem is the benefits of early childhood education seem to be more than income, they also include not-spending on things like prison or law enforcement. It's much harder for a government to budget money that it would have not spent compared to an alternate reality. Also this method would exaggerate the amount spent on the children of the wealthy as they are more likely to become wealthy.

I'm not sure if trying to internalize this positive externality is really the way to go. Maybe we should just get the public sector to make better investments in education. Still this is a cool blog post.

vinay gupta

September 24, 2009 05:31 AM

When such investment will happen, will the education come for free? If so, then how would an investor reclaim his investment. If it is by giving him a job, then will the salary be below market standard?. If it is not free, then we have to pay fees for education. Now is the investor trying to get profit from this fees. If, so I treat this early childhood investment as an education business.

Nick Schulz

September 24, 2009 02:26 PM

It's possible having hedgies look into this will blow the claims for the benefits of early childhood ed. out of the water.

http://blog.american.com/?p=5342

Justin Snider

September 24, 2009 05:16 PM

Nick -- thanks for including a link to the blog comment by Charles Murray on this. I don't think Murray could be *more* wrong on this.

Interestingly, he suggests that the results of the Perry Preschool and Abercedarian studies cannot be trusted because they are "riddled with serious methodological questions." What he fails to say but no doubt knows is that a real (and positive) phenomenon can exist even if we're not very good at documenting it. Said differently, the fact that we're bad at documenting the existence of something is not evidence that it doesn't exist at all. A classic example is gravity, the existence of which (on Earth) dates back billions of years -- and yet it is only in recent memory that we've had the scientific tools to prove it.

And every study raises "serious methodological questions" -- so this is hardly the criticism Murray intends it to be. Those conducting a particular study have to make countless choices, and there will always be people who question these choices. That is not only to be expected, but how it is and should be in the academy.

Murray's use of the word "riddled" is misleading here. To be "riddled" is to be pierced with many holes. And yet Murray doesn't say the studies are "riddled" with serious methodological holes -- just "questions." So what's his beef, actually?

The ROI evidence on early childhood education is fairly compelling for any clear-headed individual. Skeptics should read Albert Wat's fine summary, "Dollars and Sense: A Review of Economic Analyses of Pre-K" (2007), available online at http://www.preknow.org/documents/DollarsandSense_May2007.pdf.

asdf

September 25, 2009 12:42 PM

The ROI evidence on early childhood education is fairly compelling for any clear-headed individual.

That's not what a century of psychometric research shows.

So let's do this. Empirical test. Real money on the line. No bailouts for the losers. The Bell Curve vs. happy talk, mano-a-mano, for all the marbles.

I'll get my popcorn.

dennis

September 25, 2009 09:52 PM

What he fails to say but no doubt knows is that a real (and positive) phenomenon can exist even if we're not very good at documenting it.

Rumsfeldian in its postmodern brilliance. Absence of evidence, unknown unknowns, etc. We can be sure of anything, so let's just embrace that which makes us feel (or look) good.

dennis

September 25, 2009 10:13 PM

correct above to read "can't be sure of anything"

Rachelle

September 28, 2009 09:11 AM

I think you get very different opinions on this when you look at it as an economic perspective and a child development perspective. I certainly do not have all of the answers but what seems to be missing from this information is some information on brain development. 75% of a child' brain is developed by age 3 and 95% by age 5. A lot of the numbers focused on are typically based on this information. The impact of the money we spend is multiplied due to the above mentioned percentages. Whatever the solution, there DOES need to be a larger focus on Early Childhood Education.

Kelly Rosenleaf

September 28, 2009 12:35 PM

Rachelle's point is crucial regarding early brain development - 75% by age 3 and 95% by age 5. This is hard science talking, not possible future returns to private business. If we want children to succeed in life, if we want a skilled workforce, then we must invest in Early Care and Education. If we fail to invest in early childhood, investments in k-12 and higher education will be higher and less successful. Costs for other social programs like prison, welfare, etc. will be higher. Businesses and individuals, via taxes, pay for welfare and prisons. Perhaps, over the long-term, taxpayers would like to spend less on these remedial/bandaid services and more toward building a future workforce and strengthening the social fabric of our world.

Amy

September 29, 2009 01:31 AM

I am very interested in this project, and I want to know more details. Thanks for sharing the news and also thanks for all the comments.

Justin Snider

September 29, 2009 04:27 PM

Many influential economists believe that early childhood education is a sound investment. To name but a few:

1. James Heckman of the University of Chicago (Nobel laureate in 2000)

2. Arthur Rolnick of the Federal Reserve Bank of Minneapolis

3. Steve Aos of the Washington State Institute for Public Policy

4. Clive Belfield of Queens College of the City University of New York

5. Frances Campbell of the FPG Child Development Institute at the University of North Carolina

6. Robert Lynch of Washington College

So don't let anyone tell you that all -- or even most -- economists think early childhood education is a bad investment. They most definitely don't.

Imelda Graham

October 2, 2009 05:06 AM

I agree with Justin - James Heckman is working here in Irleand largely because he has sound evidence of the ROI.
The concept of these investors gettting a return is problematic > would they feel they 'owned' the cohort? perhaps a more equitable and moral idea would be for them to get tax relief now on a general investment in Early years education rather than the somewhat uncomfortable idea put forward.

But full marks for thinking outside the box!
Imelda

brad smith

October 16, 2009 02:30 AM

Really interesting idea, I'm not sure I agree with it.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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