Early childhood development – roadblocks in the way of public policy

I was recently approached by a colleague who was frustrated by the failure of successive governments to put more resources into early childhood development.

He was well aware of research showing that well-directed policy interventions directed to vulnerable pre-school age children yield high dividends as the children grow into adults. These dividends include lower rates of teenage pregnancy, more years spent in education, less demand on the criminal justice system, less demand for social security transfers, and generally better opportunities for people to develop their capabilities and contribute to society.

He was also well aware that this was an issue free of some of the partisan standoffs that can paralyse other policy proposals. So why is government not paying more attention to this opportunity?

Although I’m no expert in childhood development I am generally aware of those benefits. But having been involved with public policy for many years, as a public servant and as an academic, I am also aware of at least five systemic roadblocks that may be in the way of good public policy. They all have their origins in movements of administrative reform, which have generally had merit, but which have had unforeseen consequences.

1 – Short Termism

The first roadblock is generally known as “short-termism”. Many commentators frame it in terms of the political cycle in democracies with only three, four or five years between elections. No government that invests in early childhood development (or in other slow-yield programs such reforestation) is going to see the benefits.

That’s a cynical view however, because the public are concerned for the future, and governments are responsive to those concerns, provided they are about benefits that can be easily imagined.

It’s easier for the public to think about the long-term benefits of cleaner water than it is to think about the more probabilistic benefits of early childhood development, which, in turn, is easier to think about than the benefits of fundamental blue skies research. Those who seek to convince politicians and the people who vote for them would do well to present the benefits in terms that the public can easily grasp.

Although proposals should be backed by sound evidence and argument, the public campaign has to work on different grounds.

There is another aspect of short-termism which involves the application of high discount rates to future costs and benefits. If, say, the benefits of early childhood development take 15 years to materialise, then at a real discount rate of 7.0 percent (a discount rate used by some governments) the present value of a dollar of future benefits is only 36 cents.

Policymakers need to free themselves from the idea that there is but one discount rate. Economists point out that different people have different discount rates, and behavioural economists such as Daniel Kahneman illustrate, individuals have different discount rates in different aspects of their lives.

We do things with very long-term returns — such as having children — while we also act with extremely short-term horizons – such as when we fail to take a price reduction for prompt payment of a bill (a case of what economists call “hyperbolic discounting”).

Lord Nicholas Stern grappled with the concept of discounting in his work on climate change. It’s difficult territory, and of course there has to be some discipline of discounting the future. The rigours of benefit-cost analysis provide some (but not much) protection against government pork-barrelling and engineers with build-it-and-they-will-come ambitions.

But governments should realise that the people who vote for them expect them to make decisions that reflect their desires for the future. The Harvard economic philosopher Thomas Schelling developed a model of our entering into binding contracts to overcome our myopia. We delegate to governments some things we realise we may not have the discipline to do ourselves, such as saving for retirement.

Worse, short-termism tends to become embedded in a political culture that emphasises short-term fiscal metrics, particularly the budget cash surplus or deficit, over all other economic considerations. This emphasis is reinforced in government accounting standards, particularly at the Commonwealth level, which do not distinguish adequately between current and capital expenditure.

2 – Rewarding cost- and responsibility-shifting

The second roadblock is an administrative environment that encourages cost-shifting.  There was a set of reforms instituted by the Keating Government federally, and instituted by most state governments, to make ministers responsible for performance within their portfolios, through mechanisms such as portfolio budgeting, separation of administrative from program expenditure, and use of performance indicators. Few would disagree with the idea that these were desirable reforms.

But they have been taken to a dysfunctional extreme, to the point that they provide huge incentives for cost-shifting — a phenomenon strongly manifest in health programs where state and Commonwealth bureaucrats can protect their own budgets by pushing costs on to the other tier of government.

Similarly within jurisdictions: managers of early childhood programs are expected to act on incentives in their own budgets. If, through their work on early childhood, they manage to relieve the load on education or the justice system, they receive no reward. In fact the criminal justice system seems to pick up a great many costs passed on from other departments.

3 – Agency fragmentation

The third roadblock, related to the second, is the fragmentation of agencies, a situation made worse in our federation. In any jurisdiction front-line government workers in police, health care, education and other agencies find themselves dealing with the same small number of troublesome people. But no one coordinates their work. Each case officer tends to see the dysfunctional behaviour only in terms of his or her discipline.

There is much to be said for what the British called “joined-up government”.  A little accounting flexibility is all that’s needed to change the incentives. And restoring some of the mechanisms that once encouraged staff mobility between government departments, between federal and state governments, and between the public and private sectors would help. The impediments are over mundane things such as pay scales, portability of leave and superannuation. These should not be insurmountable.

4 – Separating “the social” from “the economic”

The fourth and related roadblock is the classification of programs as “social” and “other”. Journalists, public servants and politicians tend to classify expenditure in health care, education, child development etc as “social expenditure”, implicitly giving it a lower priority than expenditure in what are called “economic” programs such as transport and agriculture.

It’s absurd to think that our economic interests are separable from our other interests. Early interventions in children’s lives may show up in all manner of benefits — employment, later reproduction, less crime, less welfare dependence — but early childhood development is seen as “soft” — as is public health, school education and environmental policy.

That distinction, even if only implicit, stands in the way of good policymaking, for, as the Bureau of Statistics work on Measures of Australia’s Progress confirmed, there is no point in economic progress if it does not lead to benefits in terms of human wellbeing.

5 – Inertia

The fifth roadblock is the inertia of programs. For the same reasons that firms as diverse as Gillette and Kodak had difficulty in adjusting to change, so too do public sector agencies. In the same way as their corporate counterparts work, public servants invest their effort in developing programs that work well, but which are not responsive to changing needs, and are not responsive to the cases that miss out on standardised programs.

Profit-making corporations don’t have to cover the whole market: they deliberately avoid trying to cater for sub-markets that are too hard to service. Many public servants, encouraged by performance indicators inappropriately borrowed from the corporate sector, try to emulate what they believe to be private sector behaviour.

But they should be paying particular attention to the difficult cases, and families not coping in the difficult task of bringing up children would be among the hardest cases. Again, the performance management culture, which tends to focus on simple metrics such as activity or numerical caseload, tends to penalise those who take on hard cases.

There are many opportunities for improved public policy that, in spite of strong evidentiary support and broad support across the political spectrum, seem to defy attempts to implement sensible reform. Early childhood development, because of the long time before tangible benefits are realised, is perhaps one of the hardest cases, but at least some of these roadblocks can be found in most public policy situations.

The good news is that they are not intractable. They are generally the undesirable and unforeseen consequences of past reform movements.

“Second track” processes may help push some of these roadblocks aside.