The Cradle of Prosperity

Raising the New American Economy

By Richard Louv

Abstract: Leading economists conclude that investments in young children may be the best way to stimulate economic growth, and investments in young children’s social and emotional development may be the most productive of these investments. The science base for these conclusions comes from two independent streams of research: neuroscience and developmental psychology research indicating the impact of early experiences and environments on later learning and health; and longitudinal studies of the economic impact of early supports for low-income families with young children. Programs that have had the greatest impact are those that include high-quality child care that establishes a foundation for social/emotional skills in individual children while providing economic and social supports for their families.

Nobel Prize-winning economist James J. Heckman has worked for decades to unlock the secrets of healthy economic growth and job creation. “Economists want to measure hard concepts, things like a monetary aggregate, points on an interest rate, freight-car loadings,” he says. Heckman, who is director of the Economics Research Center at the University of Chicago, has been devoted to the development of a scientific basis for economic policy evaluation, in particular “lifecycle dynamic models” for unemployment, wage growth and skill formation. But he didn’t expect his inquiry to end up where it has: with data that drive him to the conclusion that investments in young children may be the best way to stimulate economic growth, and investments in young children’s social and emotional development may be the most productive of these investments.

“Skill begets skill, and that process begins early,” says Heckman. He has concluded that the origin of a nation’s productive strength—the cradle of prosperity, if you will—is best measured neurologically as well as in traditional economic terms. In this context, he points to accumulating scientific evidence that suggests a new, more productive strategy for job creation and long-term economic health.

The conclusions reached by Heckman and other leading economists challenge conventional policies designed to stimulate economic growth. In the late twentieth century, the most popular regional investment strategy had less to do with skill formation than with real estate and financial incentives. In fierce competition, state and local governments spent billions of public dollars on bricks and mortar. They erected stadiums for major league sports teams, and they offered tax breaks and free land to lure companies to their cities, or to convince local enterprises to stay home and expand. How has this strategy worked? Not well, says Art Rolnick, senior vice president and director of research and public affairs at the Federal Reserve Bank of Minneapolis. “That model simply moves businesses around without growing them, with no aggregate economic benefit to the nation,” says Rolnick. “It distorts market outcome and diverts public funds from more productive investments in economic development.” In Minnesota, he points out, “One suburb invested a huge amount of money luring a big-box headquarters from another suburb. At best, this is a zero-sum game.”

This is not to say that such incentives are never successful. Still, the first step toward creating lasting prosperity is to separate reality from myth. When civic leaders and the owners of a major league sports team argue for public support for a new or upgraded stadium, they often point to three assumed benefits: the attraction of new businesses, the creation of local jobs, and an enhanced sense of community through civic pride. However, “businesses that are locating new plants look mainly at the quality of the work force, transportation, and public schools,” according to Geraldine Gambale, editor of Area Development magazine, headquartered in Westbury, N.Y. The publication helps executives decide where to set up shop. Businesses, in fact, deem major-league teams so inconsequential that her magazine doesn’t even include that factor in its annual survey. In San Diego, when the city government and the San Diego Chargers were negotiating a public subsidy for a stadium expansion, a deal that later proved disastrous for the city, Marney Cox, an economist with the San Diego Association of Governments, said: “I’ve never seen a sports franchise on any list of business priorities. What they care about is education. They don’t want to be training their work force from scratch.”

Increasing numbers of economists now believe that the most efficient way to build human capital is by investing in a different kind of infrastructure, one more durable than sports stadiums, longer-lasting than any convention center, more foundational than tax breaks for business. That will require investing in children when they are very young, thereby bolstering the developing architecture of the brain.

The Research Base for Building Human Capital

The emerging scientific case for a child development/economic development investment strategy is based on two independent streams of research. One stream comes from the institutions that study early childhood development and the impact of experiences and environments. This research has established that a child’s brain is built over time, that a large percentage of that brain is built by age 5, and that a child’s home and community environments play critical roles in the formation of strong or weak brain architecture, which provides the foundation for lifelong learning, behavior and health. The development of sturdy brain architecture relies on experiences, interactions and the quality of early relationships in the home, in the school, and in the wider community. “A lot of formal economic models view the [human capital] development process solely in terms of raising IQs. Or else they assume that IQ is purely heritable. Neither view is correct,” says Heckman.

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