Investing in Children: The Role of the State in Unequal Societies

Inter-American Development Bank Seminar on "Breaking the Poverty Cycle: Investing in Early Childhood," Paris, France, March 14, 1999

I am grateful for the opportunity to go to the heart of the development challenge. Investing in children, as Amartya Sen has just so eloquently emphasized, is a key to the kind of development we all want, a development that improves people’s lives by improving people’s capabilities. It is a tribute to the changing times and our increasingly people-centered view of development that the Inter-American Development Bank is sponsoring a discussion of a paper by a distinguished Central Bank Governor, Miguel Urrutia, on the effects of early childhood interventions on growth and on equity.

I have three parts to my remarks: (1) why should government intervene at all in the lives of small children, which are clearly the responsibility of families; (2) the difficult politics of investing in children, and (3) the implications for the Inter-American Development Bank and the other international financial institutions.

Why intervene at all?

Behind the dry statements of economic logic – about the high returns to investing in children, the presence of capital and other market failures that may imply lower investment by families than they or society would like – is another way to think about the problem. In unequal societies, with high levels of poverty and high concentrations of income, interventions to help children reconcile equity and efficiency goals. What do I mean by this?

Most countries of Latin America have embraced enthusiastically a broad set of market reforms – fiscal rectitude, monetary discipline, privatization of state enterprises, trade liberalization – designed to create a competitive level playing field. These market reforms make assets, such as land, physical capital, information and most of all education more valuable. Those who already have these assets come to the market game equipped to play. Whether they do well or not depends on their skill and their energy. But some players, including all too often the children of the poor, arrive at the game without the assets, necessary equipment, to pay well. They may not even have the proper uniform that is a prerequisite for taking the field. If they do manage to enter the game, they are likely to lose, and may eventually abandon altogether the effort to play.

Programs of early childhood intervention are fundamentally about providing all children the chance to enter the game with a fair chance to win, i.e. with the proper equipment and training to ensure the competition is fair. In the unequal societies of Latin America, there will otherwise be a smaller pool of eligible players, fewer teams, and a less productive league. A level playing field even at age 6 may already represent an unfair contest for children who are malnourished and have never had a book read to them. Ideally it is parents who ensure their children get a fair chance at schooling and jobs, by investing time, energy and money early on. But if parents and family cannot or do not, it is in society’s interest to step in. Otherwise there will be too few players and too little competition for the local league to compete in the global contest which today’s international markets constitute.

By the way, the market reforms that are spurred by and reinforce the global integration of markets – ultimately a key to rapid growth in the region – can in the short run make the game even more unfair. This is especially the case in Latin America, where the poor are especially poor and where the distribution of land, and still today, of education is so unequal. Because the poor lack those productive assets, market reforms will not necessarily help them. Conventional reforms need to be supplemented with aggressive policies and programs to increase the assets of the poor, to ensure the poor can exploit new market opportunities. That means among other things putting a premium on programs of early childhood intervention. The more poor families there are, and the more unequal the society, the greater the logic for the state to channel tax and other public resources to child intervention programs.

The difficult politics of investing in children

If public investment in early childhood is such a good idea, reconciling efficiency and equity, why isn’t there more of it, and how might more be ensured?

On why isn’t there more, three reasons bear mentioning. First, the costs of programs of early childhood are immediate and obvious; the benefits come later with less certainty. Even the heralded Head Start program in the United States still fights for funds – though over the years its size and visibility have helped insulate it from the budget axe, and of course in the U.S. system, state and local governments can and do step in when the federal government cuts back.

Second, controversy and uncertainty about the technical issues -- what to do, what is most cost-effective, what is the right mix of inputs in what conditions -- make extracting resources from the political system difficult. A simple message is easier to sell. Of course the technical issues are real: Should childcare be publicly financed in neighbors’ homes or in larger facilities with better conditions and better-trained staff? What is more cost-effective – concentrating scarce resources on prenatal care or on nutritional supplements for infants? No one any longer questions the idea of spending public resources to send children to primary school, so there is political space for debates about class size and teacher training. This is not yet the case for many early childhood programs.

Third, there is realpolitik. Families are diffuse and disorganized, particularly if they are poor and busy with jobs and small children. Everyone who pays taxes expects some day to be old, and perhaps to need the safety net that public funding for old age programs provides. But no taxpayer will ever again be a child. In his paper, Miguel Urrutia notes that Colombia’s day care program survived but not its nutrition program – because the former built up a big bureaucracy that fought for survival and the latter did not. But creating an entrenched bureaucracy can, as Dr. Urrutia knows, be self-defeating. It may help program survival but not, ultimately, program benefits for the children, their families or society -- not if programs become vehicles to support the providers rather than to deliver services to clients. Other means for creating a benign lobby for children and children’s programs have to be found.

How, then, can advocates of these programs obtain sustainable political support in the real world of real political choices? I am an amateur on politics, but five ideas occur to me.

  • Make creating a political constituency for child programs a consideration in the design of programs. Some would say cost-effectiveness and technical efficiency should trump political appeal. But in cost-benefit terms (and because of the economic logic I referred to above), investments in children outrank many other investments. Though the ideal set of cost-effective inputs is not clear, there is a range of approaches and inputs that meet the cost-benefit test and are worth "selling" politically. Consider this example: adding pre-kindergarten to all public schools, as a universal program --publicly financed not only for the poor, but for all. In the city of Washington D.C. pre-k was first offered as an option in most schools about 20 years ago; within 10 years of its inception in some schools, parents wanted it in all schools. Virtually all 4-year olds now attend school; before only the children of better-off households attended (private) programs. Though not legally mandated, pre-k has become a social norm and there is no way the public resources it absorbs can be politically withdrawn.
  • Get steady, sustainable earmarked public resources. Economists don’t like earmarked taxes, but even economists admit that we are in a second-best world (given the market failure referred to above) where apparent truths no longer necessarily apply. Miguel Urrutia mentions the contribution of Colombia’s 2 percent payroll tax (later raised to 3 percent, a sign of political success built on the bedrock of the steady financing the 2 percent tax provided) to that country’s maintaining its day-care program at times of fiscal adjustment.

  • Welcome and build on the initiatives of small community groups, civil society and of course local governments – no matter how difficult the potential relations and how initially incompetent these potential partners. Even if not pioneers of technical or administrative efficiency, these are political partners in a good cause.

  • Create powerful and demanding consumers, with legitimate expectations for good quality and sustained programs. Empowered consumers are the most effective political proponents of a public program. Consumers by definition require choice (otherwise they are "beneficiaries"); that implies that programs should be demand-driven and face competition. That in turn implies that not all programs, for say childcare, pre-natal care, and so on, need to be directly supplied by government. Government can allow and even encourage provision by private providers, in the not-for-profit and in the profitmaking sectors. Poor households need public subsidies to make them effective consumers – subsidies should be equivalent to cash, ("vouchers" is the term used in the case of schools) when used to purchase day care and other services. This kind of approach – multiple providers and vouchers for poor households – has already been shown to work well in Argentina, Chile and Paraguay in the case of vocational training. Why not try it for programs that constitute investments in young children? Making more poor households discerning consumers is a sensible way to inform and educate all of society about the logic and benefits of early childhood programs. Government’s role is then to provide information, standards and evaluation of alternative providers so that consumers can make informed choices.

  • Finally, create new providers, mothers as microentrepreneurs, whose business success relies in part on public subsidies for their poor clients. At least one of the program options for preschool child care should include the kind of home-based program Colombia has developed, in which women who are prepared to manage day care in their own homes receive training and a minimal amount of assistance with meeting physical standards (ideally via credit programs), and are periodically "accredited" as eligible to provide services. On the one hand, it may be that the level of care at given costs can be better in more institutionalized settings. On the other hand, parents as consumers can benefit from the ability to choose between different care options (based on convenience, proximity, flexibility in hours of operation etc.) and one obvious choice is a neighbor’s or friend’s or relative’s home – and then better as part of a larger system ensuring minimal information and standards. And politically there are advantages to having providers who benefit from the public subsidies while participating in a competitive, choice-based system.

Fortunately the overall contours of realpolitik are changing. Democracy, decentralization and the increase in civil society groups in the region are all ingredients for increasing effective political demand for public investments in children.

Implications for the Inter-American Development Bank

I want to emphasize two obvious implications.

First, the bank is right to be moving from the custom until just a few years ago, of making small grants for child-centered programs. Its new ambitious goal, just announced to us by President Iglesias, is to fund at least 60 new operations over the four years 1999-2002 - - implying lending of about $2.5 billion assuming an average size of each operation of at least the $42 million average in the 1997-98 period. This constitutes an increase of 50 percent over the 1997-98 lending, which was already a major increase over earlier years.

It is worth remembering that the bank’s lending is, appropriately, shaped by the demands of its borrowers. Overall program priorities for the bank as a whole have been agreed by all the bank’s members and are reflected in the 1994 Eighth Replenishment agreement. But within that broad agreement, the number of projects and the volume of lending for specific investments in a specific time period in each country reflects what that country’s government wants. And in the region’s increasingly democratic environments, what a country’s government wants is more and more shaped by the demands of its active citizens, channeled through political parties and the organizations of civil society and shaped by the constant hard work of analysts and practitioners in the dissemination of good information about what works and why.

As has been so vividly illustrated and discussed today, borrowing by countries for child interventions is certainly warranted, as investments in children are among the highest-return investments available in the development portfolio. Those of you here who are proponents and aficionados of these investments thus have a continuing task before you – of benign lobbying for public commitments to the kinds of programs we have been discussing.

Second, the bank must assume even more analytic leadership. The IDB is and should be a bank not just of money but of ideas. How can it be that we are still relying on the one major panel study in the U.S. to claim that every $1 spent on child interventions yields $7 saved? I urge the bank to launch a serious research program, to follow over many years groups of children benefiting (and not) from specific interventions, with appropriate controls. This can best be done by sustained financial support and technical collaboration with local research institutes in four or five countries. I can imagine no better investment in the technical effectiveness and, equally important, in the political appeal and sustainability of children’s programs throughout the entire region.

* * * * *

Let me conclude by repeating a simple point: in the unequal societies of Latin America, where market reforms are creating new opportunities, the highest return investments are those that make those opportunities more accessible to more people. Investing in children guarantees a future that is more fair and thus more prosperous for all.