The best public investment for 2015?

AngusADr Angus Armstrong, who worked with Gordon Brown and Alistair Darling in the Treasury before becoming Director of Macroeconomic Research at NIESR, argues that investment in early years should be at the heart of Scottish Labour’s future plans.


At the start of every new year, the press is full of pundits suggesting which investments will yield the best returns. Yet the government is the biggest single investor in our economy, so a good question is: what is the best investment a government can make?

Of course, the criteria are very different to private investments, and the returns are social rather than private. Yet with a near zero cost of capital for the government, the financial ‘hurdle rate’ of not losing money really means there has been no better time to ask the question.

Nearly every study from around the world suggests investing in early childhood support for those from the most difficult backgrounds offers returns that would astound most private investors. With zero cost of capital, failing to invest is an egregious economic waste as well as a morally confused, tragic loss of opportunities. This should be at the very heart of Scottish Labour’s future plans to address the causes of inequality.

Many of our social problems, such as deprivation, economic inactivity and bad health, can be traced back to poor education and lack of social development at an early age. In pre-school years, children’s neurological wiring and personalities are most receptive and malleable – to good and bad influences. This period is particularly important for setting a strong foundation for healthy cognitive, social, emotional and physical functioning (Almond and Currie, 2010). There is overwhelming international evidence that early years influences have long lasting impacts. Infants in high-risk home environments can fail to develop even the most basic social, emotional and cognitive skills.

Many children face a combination of risks including living in poverty; having parents with little or no education; unstable parenting environments with a lack of parent to child engagement; a poor diet and environments without hope and low aspirations (Armstrong, 2013). Furthermore, the fall in real income over the last five years, the long-term rise in inequality and falling job security for lower-skilled jobs (e.g. from zero hour contracts), all increase the risks. The result is ‘institutionalised’ or inter-generational disadvantage, which is not only objectionable but a complete waste of our economic resources, as I wrote about earlier this week.

The good news is that research shows that early childhood intervention can counteract these problems and promote healthy development in a long-lasting fashion. Rigorously peer-reviewed intervention programmes in the US, such as the Perry Preschool Program and the Abecedarian Program have shown significant improvement in the cognitive, behavioural and emotional competencies of participating children. These gains were extended into further benefits throughout their lives, such as higher educational achievement; better health outcomes; lower delinquency and crime rates; higher wages and employability and lower social welfare programme use (see Heckman, e.g., 2010, 2013, 2014).

As an investment, these interventions also translate into substantial financial benefits, particularly for children from the highest risk environments. The cost of prevention is far less than the cost of remediation. Participants achieve higher levels of education and greater social skills, which translate into higher lifetime earnings. These personal benefits extend to their children and society through lower levels of delinquency and crime, better health outcomes and even better public finances. This is not to say that savings are the only metric for public investments. But it is important to point out in this cash-strapped environment that the two programmes mentioned above have benefit-to-cost ratios of seven and four respectively. Is there a better investment in the private sector?

Back in 2008, the Scottish Government spoke of achieving a transformation in early childhood support policies. A lot of very good work has been carried out under the previous Labour government’s flagship Sure Start programme and other locally based schemes. But for all the great work, it is hard to see that there has been a real transformation yet. Indeed, the charity 4Children report that as many as 400 Sure Start centres have been closed with £430mn cut from funding. Given the pending funding cuts, it is hard to see how local authorities can even maintain their spending. This seems to be ‘penny wise but pound foolish’ to say the least.

So how can a transformation in early years support for the most disadvantaged be achieved? I have spoken with many wonderful people who do great work in this area across the UK. But the job is to convince the doubters, rather than the believers (the practitioners). We need to show that these programmes in fact save, rather than cost money. The reason that the US and international evidence is always cited to justify support is that the evidence is based on ‘gold standard’ evaluation programmes. The precise benefits are likely to be specific to each country. To achieve a transformation, I think we will need the same sort of hard evidence in the UK.

Observational studies, such as the Effective Pre-School, Primary and Secondary Education project, show that the quality of the learning environment within the home (where parents are actively engaged in activities with children) is of utmost importance for children’s development. They show that what parents do, is more important than who they are. There is some good evidence from Wales that shows that Sure Start has delivered important benefits in behavioural and cognitive outcomes.

Over the last two years, I have been working with colleagues in Peterborough City Council and the Institute for Fiscal Studies to set up a programme to support infants through weekly home visits aimed at encouraging mothers to play and talk more with their children. We hope that the programme will show that the investment will be more than covered by the reduction in the need for special needs education in their first five years of schooling. Even ignoring all of the private and social benefits that accrue later in life, we hope to show that this investment fully covers itself in the first five years of schooling.

One and a quarter centuries ago, Professor Alfred Marshall, who transformed political economy into modern economics said, “the most important of all capital is that invested in people; and non more so that invested by the mother in her child.” Leaving aside the lack of gender balance from yesteryear, the point is still correct: investment in children remains paramount. Rather than allow more cuts to Sure Start and other early childhood programmes, this should be the number one priority for Scottish Labour. It is not only an expression of our values, it is also quite simply, the best investment we can make.

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