Where Should Government Invest? How About Early Education

The debate over spending in Washington centers on the question, “Can government make a good investment?” 

But, both sides can agree that where government can make a worthwhile investment, it should. Identifying these worthwhile investments and ensuring that outcomes are productive as well as both open to innovation and fidelity in implementation is often an overwhelming task.

Social impact bonds, which allow for private investment in activities that provide a public return and then provide a return to the bond holder depending on the success of the program, offer an avenue to address government inefficiency in the funding and operation of some programs. A high-potential opportunity for social impact bonds can be found in early childhood education, a program that offers students additional preparation for school. Early childhood education is an investment that can provide high returns but is presently underfunded.

A successful program implemented early in a child’s life will eliminate the need for more costly programs later, such as special education, repeated grades, incarceration, and welfare. Further, high-quality intensive early childhood education can return $7 to $14 on every $1 invested. Several studies have estimated the value of early-childhood education, and all found substantial savings. 

For example, randomly selected participants of the Perry Pre-school Program in Ypsilanti, Michigan, realized a benefit of over eight times the initial investment. Excluding private benefits and tax revenues produces a return of over six times the initial investment for a 37 year period. The estimate of this public return is almost 10% above inflation annually. A study of New Mexico’s pre-K program demonstrates that early-childhood education implemented at scale is at least as effective as under experimental conditions, with an estimated real return of 18.1% to the state and 22.3% to the U.S.

Compared to traditional low-risk, long-term investments like 30-year Treasury Bonds (3.26% return) and 20-year Corporate AAA bonds (4.35% return) as of October 21, 2011, early-childhood investments present the chance for a greater return to investors.

However, the nation’s flagship early childhood education program, Head Start, fails to adequately address the achievement gap. Other federal initiatives have not shown much promise either, and the Obama administration’s Investing in Innovation program had relatively few high-quality proposals that included early-childhood programs. Meanwhile, the newest iterations of Race to the Top for early-childhood education are focused on accountability and data systems, not long-term outcomes. Like No Child Left Behind, this opens the possibility of compromising on long-term goals for short-term program objectives. 

Social impact bonds outsource government risk to private investors, who have an incentive to seek a long-term gain. While not all the benefits of a given social program can be monetized, the private sector can play an important role in both bettering the conditions of disadvantaged individuals and our society as a whole in situations where the government has failed to invest enough to realize this basal level benefit.

Photo Credit: caseywest