At a recent presentation I made on early childhood programs, one person asked the following question: “How do we restore the American middle class?” Although some might perceive this question as “off-topic”, I do not. We need to be thinking about an overall strategy for greater economic prosperity that will include all of us. Early childhood programs should be part of that strategy. But early childhood programs are not the complete strategy. Even for advocates who are focused on early childhood programs, it is helpful to keep in mind an overall economic strategy. The overall strategy affects which packages of early childhood programs with other policies make the most sense.
In my view, the overall strategy for a broad-based prosperity includes two types of policies:
(1) Policies that cost-effectively lower the short-term costs of new business investments.
(2) Policies that cost-effectively provide the most important inputs for greater economic productivity.
Policies of type 1 include some of the more effective business incentives. As I have outlined in previous posts, such effective business incentives include customized job training and manufacturing extension services (see also my Hamilton Project paper on this topic). But some business tax incentives can also be effective. Pursuing policies of type 1 also implies that we will keep business tax rates on new investment at a reasonable level. Early childhood programs can also lower the short-term costs of business investment in a state by attracting parents (see my previous posts on effects on property values, and support in the business community for early childhood programs as a way to attract parents).
Policies of type 2 include early childhood programs. Early childhood programs increase the long-run quality of the local labor force, which boosts business productivity. And early childhood programs do so in a cost-effective manner. But other policies also boost the quality of the local labor force. Reforms to K-12 education can also work. These include reforms that will increase learning time, increase teacher quality, and focus high schools more on valuable workplace skills. Job training for adults can also work if it is tied to employers’ skill needs. In addition, economic productivity may also be raised in a cost-effective manner by selective investments in infrastructure, such as transportation infrastructure.
“Cost-effectiveness” is an important descriptor of the policies I recommend. Why? Because we cannot as a nation afford to pursue all policies that might make some claim of lowering business investment costs or providing inputs to greater economic productivity. I might have added “research-proven” as an additional criterion.
I have previously outlined this approach in a working paper, “What Should Michigan Be Doing to Promote Long-Run Economic Development?”. Despite its title, the eight ideas outlined in this paper would be applicable to any state’s economic development strategy. One of these eight ideas is for an expansion of early childhood programs. But the other seven ideas address some of the other needed components of a comprehensive economic development strategy.
I owe a debt to economic historian Peter Lindert for this way of thinking about economic strategies. In his book, Growing Public, Professor Lindert examines how Western European countries have been able to sustain economic growth despite large social spending. His answer is twofold: (1) Despite a large public sector, these countries have kept tax burdens on business investment reasonable; (2) Much of these countries’ social spending is productive, for example spending on education.
We need to have a balanced view of how public policy can best promote economic prosperity. Economic prosperity is not solely achieved through policies that obviously lower short-run business costs, such as lower business tax rates. On the other hand, business costs are of some importance. A comprehensive economic development strategy will include well-designed investments in a higher-quality labor force. Early childhood programs should take a leading role because of the strength of the evidence for their large effects on labor force quality per dollar spent.