Economic development – zero sum game

Friday, I heard Art Rolnick, Senior Vice President and Director of Research Federal Reserve Bank of Minneapolis, speak at the Education Minnesota Conference. His topic was “Early Childhood Education – Economic development with a real return.” He has spent the last ten years studying the research on a variety of forms of economic development and has concluded that investment in Early Childhood programs for at-risk families pays the best return of any economic development plan. Like Elmer Anderson, Rolnick was very critical of schemes he described as zero sum games, where businesses vie for tax incentives from various states or communities to encourage them to expand or resettle. These schemes may result in jobs in one community but at the same time represent job losses some where else, hence the zero sum game. These ‘local economic development’ schemes also result in communities forfeiting funds meant for public purposes to private hands, with little overall return to the public. Who benefits? The public doesn’t, local government doesn’t, it’s the corporation. As Anderson noted, taxes are not the reason a company chooses one community over another.

To make his point about education he gave an economic history of the state.

Minnesota’s Economy
1920 – Minnesota was well below the national for per capita income and production of goods and services
1957 – We start to do better Why? We’ve made a serious commitment to invest in education.
1974 – With further improvements in education funding Minnesota betters its neighbors in income and product.
2004 – Minnesota has one of the best economies in the world.

In the 1970s, the investment in education paid a 30 to 40% premium, and now that premium on the investment is 80%. Across the globe the key to sound economic development is education, from birth to age 18+

Not welfare but economic development

Rolnick described three or four 30 year longitudinal studies that looked at the positive effects of early childhood programs on at-risk families. In particular, he mentioned the Ypsilanti Study that showed:

In analyzing the data collected at age 27, research staff found the following major differences favoring the 27-year-olds who had been enrolled in High/Scope’s active learning preschool program:

Social responsibility. By age 27, only one fifth as many preschool program group members as no-preschool program group members had been arrested five or more times (7% vs. 35%), and only one third as many had ever been arrested for drug dealing (7% vs. 25%).

Earnings and economic status. At age 27, four times as many preschool program group members as no-preschool program group members earned $2,000 or more per month (29% vs. 7%). Almost three times as many preschool program group members as no-preschool program group members owned their own homes (36% vs. 13%); and over twice as many owned second cars (30% vs. 13%). Only three fourths as many preschool program group members as no-preschool program group members received welfare assistance or other social services at some time as adults (59% vs. 80%).

Educational performance. Almost a third again as many preschool program group members as no-preschool program group members graduated from regular or adult high school or received General Education Development certification (71% vs. 54%). Earlier in the study, the preschool program group had significantly higher average achievement scores at age 14 and literacy scores at age 19 than the no-preschool program group.

Commitment to marriage. Although the same percentage of preschool program males and no-preschool program males were married (26%), the preschool program males had been married nearly twice as long as no-preschool program males (averages of 6.2 years vs. 3.3 years). Five times as many preschool program females as no-program females were married at the time of the age-27 interview (40% vs. 8%). Further, preschool program females had only about two thirds as many out-of-wedlock births as no-preschool program females (57% vs. 83%).

These findings indicate that a high-quality preschool program, such as High/Scope’s, can significantly increase children’s future contributions to families and society. The key, as Rolnick points out, was that these are family programs that guide the whole family, not just the child. Rolnick and his partner Rob Grunewald looked at the data and calculated a rate of return for this public investment. They determined it brought a 12% economic return in savings because money did not have to be spent on law enforcement and penal institutions, resulting savings in welfare and special education.

“Only 50% of Minnesota preschoolers,” Rolnick says, “are ready for school and 30% barely know their name. An investment to help prepare them for school would go along way in staving off costs later on.” To remedy this, he proposes the establishment of a 1.5 billion dollar trust fund that could be used offer scholarships to 3 year olds and their families who met an at risk criteria. Do we have the money? Rolnick says the Minnesota gross state product is $200 Billion, and he is busy talking to State and Federal Government officials and corporate heads to put together a package that would include investments of $.5 billion each from the State, Federal Government and the private sector to get to that $1.5 billion endowment. Rolnick also mentioned that the Itasca Project, a group of CEOs, are also looking at the early childhood issue.

Another testament to one of Minnesota’s strengths: a commitment to facing up to the problems before us and solving them.

After his talk, I asked him for some grant suggestions to help us with our parenting program in Northfield and he gave me some suggestions and encouragement with our program. We had a brief talk about the upcoming campaign, and he said, noting my Kerry button, “Oh, you’re a Democrat, we need you in there,” and wished me the best in the election.

Comments are closed.