Stop Investing in Stadiums...Start Investing in Kids

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How early childhood education leads to economic development.


The “Scholarship-Plus” approach to early childhood education.

Sniderman: We’re here this morning to discuss early education. How did you first become interested in this topic?

Rolnick: My involvement was serendipity. A group of us used to meet about once a month for lunch here in downtown Minneapolis—some lawyers, businesspeople, academics, and media people. About nine years ago we invited the executive director of an organization called Ready for K [kindergarten], which was established by a former governor of the state, Al Quie, and a former mayor of Minneapolis, Don Fraser. The organization was advocating for early childhood education and development.

I listened to the talk. They presented what I thought was a fairly weak argument. It was basically a moral argument, and it’s not that I disagreed with it. But it was weak from an economic point of view. I felt that if they were going to really push this issue forward, they should look at the economics of investing in early childhood education. Policymakers need a way to rank a plethora of reasonable-sounding initiatives. They need a way to figure out how much to invest in each. And that’s where economics comes in.

I made that comment, and that was my mistake! Because the board of Ready for K, in particular the former governor and mayor, started calling and asking if I would come on the board and write the background paper.

So I agreed to look into the economics of early childhood education. I went to work with my colleague Rob Grunewald, who was our education outreach person at the Federal Reserve Bank of Minneapolis. After three months we had our report and sent it to Ready for K. I thought I was done and could resume my research on pre-Civil War banking.

I was wrong. Since that report, over the last nine years, almost every week, Rob and I have received at least one call or written invitation to speak somewhere on this issue. We have been to almost every state.

Sniderman: What are the critical differences in the way the issues are framed and how you evaluate some of the choices that need to be made from the economist’s perspective?

Rolnick: We argued that early childhood development is economic development, and the research shows it’s economic development with a high public return—very high.

We looked at four well-known longitudinal studies. I’m going to talk about one in particular, the Perry preschool study. That was back in the early 1960s in Ypsilanti, Michigan. In this study 123 at-risk kids and their parents were enrolled and randomly divided into two groups. One group got a very high-quality early education program, including master’s-level teachers, small classroom size, and home visiting. So there was a program group and a control group. Reports were produced every 10 years and we now have a 40-year report, comparing the children who eventually became adults who were in the program, to the control group.

Rob and I asked a very simple question: What was the return on that investment? It hadn’t been quite asked that way before.

That’s what economists would normally ask about any proposed public investment. We know the cost of the two-year program; in today’s dollars it was $22,000 per child. Now we need to know the benefits. Well, children that were in the program were less likely to be retained in the first grade, and that’s a significant saving. They were less likely to need special ed.

We found that in the Perry preschool study, the annual rate of return, inflation-adjusted, was 16 percent. I don’t think you could finda better public investment.

That’s a significant saving. They were more likely to be literate by the sixth grade, graduate high school, get a job, pay taxes, stay off welfare. And the largest benefit of all, for the children who were in the program, the crime rate went down 50 percent relative to the control group.

Economists can put dollar values on all these benefits. And then we can back out the return on investment based on the benefits and the costs. We thought it would be high. We compared it to the stock market. The annual yield in the stock market, post-World War II, is about 5.8 percent, so we thought we would be doing well if we could beat 5.8 percent. We found that in the Perry preschool study, the annual rate of return, inflation-adjusted, was 16 percent—I don’t think you could find a better public investment. (In a more recent study, James Heckman finds a somewhat lower, but still high, 10 percent return.)

Sniderman: What have you learned about what it takes for a program to be successful? Does it extend beyond the classroom?

Rolnick: Let me clarify; when we’re talking about early childhood development and education, we’re talking prenatal to five years old. Learning begins right away. The neuroscientists show that if the child is in a stressful environment during these early years, the brain doesn’t develop properly. There was a famous study by Dr. Bruce Perry on the orphans in Romania. They were put in cribs and virtually ignored, except for feeding time. At age three, their brains were about a third smaller than what they should have been.

I think we have the research on our side. I think we have the economic case on our side…Unfortunately, we still have a longway to go politically to make all this happen.

One of my mentors, Dr. Jack Shonkoff at Harvard, makes a strong case that the debate between nature and nurture is over. We know that environment matters a lot for normal brain development, starting at prenatal. In other words, there is a critical mental and physical health component to early childhood education.

We have a lot of research that says if a child is in a healthy environment, in a loving environment in which there’s bonding between the parents and the child, where there’s positive interaction, so the child starts ready for school, cognitively ready and socially ready, there’s a high probability that child will succeed in life. If not, there’s a high probability she will not.

Here is my frustration. We have a lot more information that there is an extraordinary public return to early childhood education and a small return to investing in professional sports teams. Indeed, we spend billions of public dollars around this country building sports stadiums and arenas. There is virtually no return on these investments, because they would have been built without public subsidies. I think we have the research on our side. I think we have the economic case on our side. I think we have the healthcare case on our side. Unfortunately, we still have a long way to go politically to make all this happen.

Sniderman: You have stirred up some controversy in terms of the program design that you had in mind. I wonder if you could describe the more unusual approach that you’ve been advocating in your program design.

Rolnick: You’re right; some have questioned our second essay.

When we looked at the research, a number of challenges were suggested:

  • One is that if we’re going to come up with a public policy, it would have to be one that we could scale up so we apply it to all at-risk kids.
  • Another challenge is we didn’t think we could get sustainable results if we didn’t engage and empower the parents.
  • A third challenge is that you’ve got to be able to measure results. You can’t just tell the public, "Trust us." You have to be able to show that these kids are actually benefiting.
  • Finally, there was the challenge from the neuroscientists who said you can’t just start at three—you’ve got to start at prenatal or birth.

Based on those challenges, Rob and I came up with a policy proposal that focused on the demand side of this market. As economists, we’ve been taught that markets are powerful forces. If you’ve got customers with economic power, the market will make things happen. We proposed a simple idea—scholarships. We advocated for providing two-year scholarships to families living in poverty so they could send their children to high-quality early childhood programs for three- and four-year olds. That’s where we began our proposal.

Then critics said that’s fine, but it doesn’t start early enough. Well, we actually call our program "Scholarship Plus," and the plus is a home-visiting mentor that begins prenatal. We advocate that this home-visiting mentor, the first one coming to the door, is a home-visiting nurse because of the health aspects. That mentor stays with the family, or triages if necessary, so that family has an ongoing mentor who works with them on nutrition, prenatal care, and parenting skills. Studies show that when you have home-visiting mentors working with teenage moms especially, you can reduce infant mortality and the number of low-birth-weight babies. So you get at that health component, you get at that initial bonding component, you make sure there is positive interaction between the baby and the mom. That’s the beginning of our program. Then when the child turns three, the child receives a two-year scholarship.

The conventional approach is more top-down. It focuses on programs, not on parents. However, I don’t care how many good programs you have out there. If you haven’t engaged the parents, if you don’t get the parents into the program, you’ve failed. Our argument is to start with the parents, focus on the parents, and empower the parents with resources; the market will provide the quality programs.

We actually have a pilot project that is testing these ideas, and what we’re showing is that, sure enough, the market responds. We have a four-star rating system; you have to be a three- or four-star-rated program to get our scholarship kids; our scholarships pay up to $13,000 a year. Our critics said there wouldn’t be enough capacity; they were wrong. Capacity of high-quality programs has grown with demand, as predicted. (See the Minnesota Early Learning Foundation website for a description and evaluation of this project.)

Some private early ed programs have moved into the neighborhood, very good programs. Head Start and Montessori have expanded their programs; in the St. Paul schools, early ed capacity is growing. The market is responding. Our parents are not having a problem finding programs. There were some issues when we were first handing out the scholarships, but once the word got out, capacity started to increase. We’re getting the kind of results that we hoped for, and we’re getting engaged parents involved in the process.

Minnesota Early Learning Foundation

Established in 2005, the Minnesota Early Learning Foundation is a nonprofit organization dedicated to developing cost-effective strategies to prepare children for success in kindergarten. Over the last three years, MELF has raised more than $19 million privately to fund an early childhood education program called Scholarship Plus. In the foundation’s pilot program, low-income parents in a St. Paul community are eligible for no-strings-attached scholarships worth $13,000 to enroll three- and four-year-olds in highly rated preschools. This summer, 625 parents were signed up. Now, the foundation is working to expand the program across the state. Participants also are assigned a “mentor” to work with them on an array of parental issues, including nutrition and health.

www.melf.us

Sniderman: Can you describe some of the challenges early ed is facing in gaining more acceptance and funding?

Rolnick: We think from an education perspective, the case for early ed is strong. But if you were just looking at early childhood development from a health perspective, you would wonder why more public resources are not being invested in our most at-risk children. The research is overwhelming. So why are resources not increasing, especially in a state like Minnesota? We’re an education state, very progressive state, very wealthy state. The problem politically is that these kids don’t vote, at least not in our state! Their parents generally don’t vote. These problems are long-term, they’re opaque, you don’t really see them until many years down the road. If I build a stadium, you see that tomorrow. It looks like you’re creating jobs even though you’re really not, you’re just moving them around. So it is an interesting political issue.

More generally, there is a disconnect between our public priorities and the research. There is the research that shows there’s a high public return to making sure our at-risk kids start healthy and ready to learn at kindergarten, versus the research that shows that investing public money in entertainment and other private businesses has a very low public return. And it’s not just sports teams that pit one city or state against another. But in the name of creating jobs we use public subsidies to try to lure one company from one state or one city to another. This kind of economic development, which seems to dominate conventional practice, is winning the day. That’s where most of our economic development dollars go across the country—and it’s billions of dollars—while early ed struggles just to maintain its funding.

Sniderman: One of the critical aspects in program design that sometimes gets short shrift is data collection, with the idea that you want to do some sort of program evaluation at various points along the way. Are you feeling reasonably good that people are doing an adequate job of collecting the kind of information that we’re going to need, so that we can make better progress in program design?

Rolnick: It is important for us to make early childhood programs as concrete and as visible to the public as we can. The way to do that is to collect the kind of data you’re talking about. The Minnesota Early Learning Foundation, along with the University of Minnesota, is helping to fund this type of work. We will follow our scholarship kids. We will be able to show you whether our kids succeed or not on a variety of metrics, and not just through kindergarten. We plan on longitudinal studies to show how critical it was to have high-quality early ed programs. To see what it meant to the kids in kindergarten. To see what it meant to them in third grade. To see what it meant to them when they graduated high school and beyond. That is the kind of data we’re collecting, student by student. We’re going to use that data in variety of different ways, but in particular to make this issue as visible as we can.

Sniderman: Given the fact that the funding is private and voluntary, are you running into any issues in terms of privacy and so forth in collecting information? Do you have to have parental consent to follow the kids and collect information all along?

Rolnick: We are attuned to privacy issues and are working closely with parents. We tell the parents that we will be collecting data on the progress of their children; individual names will be kept private. However, we will only do this with their approval. Our parents have been supportive; it has not been a problem.

One problem we thought would be difficult to overcome was the failure to use the scholarships. We budgeted that 10 percent of our families who received scholarships wouldn’t use them. Social service agencies told us that many of these parents are in such difficult situations that they may not take advantage of the scholarships. We built that into our budget. The "bad" news was that they all used the scholarships! So we’re short on some funding and had to raise more. We did not have one single parent that did not use the scholarship: 625 families signed up and 625 families are using the scholarships.

Sniderman: That leads me to another question. Some people have also said it’s a lot easier to work with kids who are three and four years old than with prenatal or newborn kids because families view these interventions as invasions of their personal space; they’re very uncomfortable with having outsiders come in and participate in their parenting. When you think of publicly funded programs as compared with what you have, which is strictly private and in effect voluntary?

Rolnick: That is not my understanding of the problem. You used the term ‘voluntary,’ our program is all voluntary. We’re providing tools to families, and they can choose to use these tools or not. There is some research that shows if you start with the mom, first child, prenatal, they will be very open to working with a home-visiting nurse. Once bonding takes place between the mentor and the mom, much progress occurs. Some families use the mentors more than others; our mentors customize to the families’ needs. We think this is the way to go forward because we want to engage the families on their grounds, where they’re comfortable. We’ll have more information on this issue as we progress, but reports from the preliminary focus groups show results that are very positive for the mentor program. Parents don’t view the intervention as invasive; they view it as a tool that they can use or not use. They appear to realize that these are important opportunities for their children.

Sniderman: I know you’ve had opportunity to go to many other parts of the country and talk to people, and there are a number of different approaches that are under way in other places. I wonder if there are any programs in particular that you’re especially interested in or anxious to see how they’re coming out, ones that you’re particularly encouraged by, even though they might be quite different than the programs that you’re attached to in Minnesota.

Rolnick: First, we’re most interested in programs that are going to try to replicate the Scholarship Plus model, and there are several that are in various stages. Sioux Falls, South Dakota, has a Scholarship Plus model. Portland, Oregon, is looking into developing an early learning foundation and doing the Scholarship Plus model. Denver raised a sales tax and they fund a universal four-year-old scholarship model—mostly in areas that have high numbers of at-risk kids. There are several cities in Virginia that are looking at the Scholarship Plus model, so we’re keeping in contact with many of these possible programs.

The one approach that is different from ours that I’ve been keeping close tabs on is Geoffrey Canada’s Harlem Children’s Zone (HCZ). HCZ is parent focused in several ways, which we think is one of its keys to success. HCZ works hard on engaging the families. This is an issue that isn’t often discussed, but the heavy lifting—in my view—is getting the parent engaged and into the program. We had to go door-to-door in St. Paul. It isn’t like we just opened up a storefront and said ‘free scholarships,’ and they lined up—didn’t work that way! We had to go door-to-door and we had to get their trust. Often we went to a home with a community leader. Geoffrey Canada used financial incentives to get the parents to come into their program. Something near and dear to my heart as an economist because we know incentives work. I’m very interested in following Geoffrey’s approach. I don’t think it’s easy to replicate, but what it does show is that a high-quality program—and his program is very high quality—with dedicated teachers, focused on the most at-risk kids, working on engagement, can eliminate the achievement gap by the fourth grade. It’s a program that I like to cite because it works. I don’t think it’s replicable, however. I can’t clone Geoffrey; I can’t get a Geoffrey Canada in Cleveland, Portland, Boston, and in Detroit at the same time. But I could get a competitor. In fact, I was hoping that if we can get a Scholarship Plus program going in New York, we can get a competitor down the block from HCZ. And if I know I’ve got a competitor in Harlem, then I know it’s sustainable. I know if parents have choices and can go between those programs, then we have a sustainable model. So that’s one program in particular I’m watching very closely.

Oklahoma has a universal four-year-old program. It’s interesting to study the results that are coming out of that program. Their good results are mostly driven by the at-risk children, but they are getting some positive results from lower-middle-class and middle-class kids. So there is some evidence that there isn’t just a fine line where you can cut off the at-risk kids from the not-at-risk kids. There’s a lot of good information we can glean from Oklahoma. We’re also talking to countries around the world that have a variety of early ed approaches where I think we can learn from them and they can learn from us. There is a lot more data we need to collect. Having said that, the research we already have is overwhelmingly positive. I do not think you can go too far wrong in the state of Minnesota by investing in a Scholarship Plus program for every at-risk kid in this state. It would be an interesting experiment if the state of Minnesota were to adopt such a program and see what economic impact it would have on willingness of firms to locate or expand in this state. I’m arguing of course, with that kind of commitment to education, that long term this is going to be a strong economy from a human capital point of view, and human capital is critical going forward to sustainable economic growth.

Sniderman: I know the analogy isn’t correct, but there’s been a charter school movement over the past decade. The research shows it’s clearly not a panacea. Some schools perform extremely well and offer great choices for families, and there are others who haven’t done so well. Are there things that can be learned from the way the charter school agenda has moved out that are informative for the kind of model you have?

Rolnick: My guess is yes, but I don’t think anybody has asked the question the way you just did. Here’s a guess—you get engaged parents, and those charter schools work pretty well. If you happen to take some kids out of high-risk areas and convince the parents that their kid should come to our charter school but you don’t engage the parents, my guess is that those charter schools are going to be iffier. I’ve seen enough research that says the key to success is to engage the parents. I think the heavy lifting has got to be engaging the parents. Yet, it’s hardly discussed. At all the conferences and workshops I attend, I never hear anybody talk about how to engage the parents. What do you do? How do you get to that teenager, a kid who’s raising a kid, who’s living in poverty, who’s on a cell phone hardly interacting with the baby? Do you think you can send them a pamphlet and they’re going to sign up? You’ve got to go one-on-one into the home. It’s the only chance you have. The only research that I know related to this issue is the work of David Olds on the visiting nurse; that’s impressive research. What Geoffrey Canada is doing is impressive—door-to-door, working with the parents. So my guess is that parent involvement is a key ingredient to success.

Sniderman: It turns out having some support systems in the community probably helps too, right?

Rolnick: Working with the community is part of the mentor's/home-visiting nurse’s responsibilities. Mentors need to know what community resources are out there and connect the parents to these services. How successful mentors will be in this task is difficult to predict. However, within our small community in St. Paul, with 625 families, we expect to develop synergies among our families, which should prove helpful.

Sniderman: As you mentioned, Art, some of the programming is very challenging to find funding for. What sense do you have about federal-level support and interest in early care and education for kids in the areas that we’ve been talking about?

Rolnick: On both sides of the political aisle there’s an understanding of the latest research on early childhood education and the potential return to society. I say both sides of the aisle because during the campaign, both candidates cited James Heckman’s work out of the University of Chicago, who has done path-breaking research on the importance of investing early in children’s education, and cited the Minneapolis Fed’s research as well. The Obama Administration has made a strong commitment to early childhood education. They’re supporting something called a "challenge grant" that’s working its way through Congress. In addition, there is money in the healthcare bill for home-visiting nurses.

In the name of creating jobs, we use public subsidies to try to lure one company from one state or another city to another. This kind of economic development, which seems to dominate conventional practice, is winning the day…while early ed struggles just to maintain its funding.

So I think there is a lot of encouraging movement in Washington. I do think, though, it’s up to the cities and states, the local communities, to be more aggressive in this area. I think there could be federal dollars if they are. I think it’s going to take a partnership, the private sector with the local communities and the federal government. But I think it’s important for communities to get their priorities in order to make it clear that this is an area we can’t afford not to invest in.

Sniderman: Are there any aspects of this subject that I haven’t probed that you want to make sure you get out on the table?

Rolnick: Let me reiterate where I think the important thrust of the early ed public outreach should be focused. If you were to go around to various conferences, retreats, workshops on early ed, a lot of it is focused on capacity, the supply side, more teacher training, better curricula, on more buildings, on a better system, on a top-down approach. I think we have to make it clear that there has to be a rethinking of how we address early ed. What’s missing in most of those discussions is a focus on the at-risk parents, providing them tools. That’s a real switch in the framework. It’s an economist’s point of view, I admit. But it’s one that has a lot of promise. I think it’s very consistent with the research on the longitudinal studies, the neuroscience research that says you’ve got to have those parents engaged and empowered if we’re going to be successful. My concern is if we just throw money at more programs without engaging the parents, we’re not going to get the kind of returns that we saw in the research. I want to stress that.

Along with that I want to stress the political problem of making this issue as concrete and as visible as we can. Until we do that, I don’t think we’re going to get the kind of funding that we need to bring this to scale.

Sniderman: You recently announced your retirement from the Federal Reserve Bank of Minneapolis, where you’ve been for quite some time. I wonder if you could tell us a bit about what Stage Two for your career is going to be. Are you leaving behind early childhood education issues, or are you stepping more fully into that arena?

Rolnick: My last day at the Bank here is July 30. In September, I will start a new position at the University of Minnesota in the Humphrey School of Public Affairs. I will be the co-director of an organization that is going to focus on early childhood education and development. It’s going to be heavily research-oriented. Actually, this institute exists today. It’s a partnership with the Bank and the university. We started this institute about three years ago. I’m a co-director along with Arthur Reynolds at the University of Minnesota. And Arthur and I will continue on with this institute at the Humphrey. A lot of what we’re going to be doing is running conferences, workshops, promoting more interdisciplinary research on this issue. We’re going to also move beyond early ed into K through 12, viewing it as a pipeline and examining the research going into the later grades. This fall we have a conference on health and early childhood education. We’re probably going from there to look at the criminal aspects of some of these issues. Along with that we are going to be evaluating the various Scholarship Plus pilots that are popping up around the country. We’re hoping to be the go-to place, to do evaluations, bring various pilots together, and again, attempt to make the issue more visible. So, my next job continues the early ed agenda that we started here and at the University of Minnesota.

Sniderman: I think it will be fascinating to come back five years down the road. There will be a lot more children who’ve had the opportunity to participate in the programs in Minnesota and some of the other places that you’ve mentioned. We’ll certainly be in a position to know quite a lot more than we do today about how effective these programs are and what some of the critical elements are that go into making up high-quality programs. I know you’re excited about what the future is going to bring as well.

Rolnick: I hope five years from now we’ll be out of business! We’ll have convinced the public that this is what you should do, the scholarships and mentors will be there for all poverty kids, and then I can go back and finish some of my pre-Civil War banking papers.

Sniderman: Thanks a lot for your time this morning, I really appreciate it.

Rolnick: Thank you, Mark.

Arthur J. Rolnick

Position: Senior fellow at the Humphrey Institute in Minnesota

Past Position: Senior vice president and director of research at the Federal Reserve Bank of Minneapolis

Essays: Include the nationally recognized “The Economics of Early Childhood Development”

Education: Wayne State University, BS, mathematics; University of Minnesota, PhD, economics

Bio: Rolnick joined the Federal Reserve Bank in 1970. He served as senior vice president and director of research from 1985 until his retirement this summer. In 2003, Rolnick and colleague Rob Grunewald wrote a policy proposal that advocates providing high-quality early childhood education to at-risk children. That effort has grown into a pilot program supported by the Minnesota Early Learning Foundation.

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Mark S. Sniderman

| Executive Vice President and Chief Policy Officer

Mark S. Sniderman

Mark Sniderman is executive vice president and chief policy officer at the Federal Reserve Bank of Cleveland. He is responsible for guiding the Bank’s economic research and community development efforts.

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