Baby steps to boost the bottom line

The economic case for improving early childhood support is overwhelming. As productivity takes centre stage, it can help shore up strength in our transitioning economy.

Getting lost in the productivity debate is a pivotal and two-pronged issue that can substantially drive the long-term growth Australia needs to secure the post-mining boom ‘transition’.

Early learning and childcare were rightly identified by the Grattan Institute as two important gamechangers in its report on where to focus long-term fiscal strategy. The link between affordable and accessible childcare and female workforce participation is generally understood as a key driver in improving Australia’s low female workforce participation. But if we focus on childcare without regard to quality of service delivery, we miss what the data tells us is the real hinge: the provision of quality early learning and care focused on cohorts of disadvantage.

The Grattan Institute identified the evidence that investment in appropriate early learning for disadvantaged children yields higher returns than later in life. Nobel laureate economist James Heckman says this area is the strongest case for social investment he has seen. He has become a compelling advocate for the ‘generation-long’ returns that can be created by lifting children whose background and circumstances can predetermine a life of social exclusion to a place of inclusion, employment and contributing to the nation’s productivity.

This is an area which demands we do a better job of fusing research and science with the business skills and economic analysis that understands the productivity case, and with the policy discipline to take a long-term approach to drive sustained change.

First, the science. Research into brain development points to the sensitivity of the developing brain to the environment in which factors like good nutrition, prevention of infections and trauma, and a responsive and stimulating environment are all crucial in allowing children to develop and reach their potential. Where these environmental factors are problematic – poor parenting, neglect, exposure to violence, dysfunctional families – this is reflected in increased levels of stress hormones which interfere significantly with the development of neural circuits, which form the essential neurological foundations for all development that follows.

Equally robust research tells us that what happens in the early years can have lifelong consequences. Stressful environments in the early years reset physiological and immune systems in the body with lifelong consequences. A diverse range of adult physical and mental health problems have their roots in pathways that often begin in the early years. In other words, it is biologically and economically more effective to get it right the first time than to try and fix things later on.

This brings us to the economics and productivity case. Based on long-dated studies in the US, Heckman referred to equivalent investment returns of 16 per cent and more based on the powerful economics of lives transformed from backgrounds of exclusion and disadvantage to workforce engagement and productivity.

Graph for Baby steps to boost the bottom line

We can reasonably assume the applicability of these sorts of returns in Australia with findings from the Australian Early Development Index (which has data on 98 per cent of all Australian children as they start school) showing clearly that those children who attended preschool were significantly less likely to have development problems when they started school. And importantly, when Queensland introduced policy to improve the state’s low preschool participation rates, their AEDI results improved markedly.

The ability to bring different skills and disciplines to the case for early learning has been evident with the formation of GoodStart Early Learning. The non-profit syndicate which successfully took over 700 bankrupted ABC Childcare centres is now three years old. It is putting into practice the idea that by bringing business disciplines to a critical social purpose area, change can be made. GoodStart will pay off all bank debt associated with the purchase in the next few months; it is redirecting surplus to critical areas of need in supporting provision of quality early learning and care to cohorts of disadvantage, and is engaging with the sector and government to push needed policy change and focus.

Public policy should be informed by research and evidence backed by a preparedness to make the long-term investments in nation-building productivity where they count most. Science and economics would indicate there is no smarter place to focus in building the country’s stock of human capital than early learning. In particular, if we do so with a bias to those who are excluded and from backgrounds of disadvantage, the economic case is overwhelming.

Frank Oberklaid is director at the Centre for Community Child Health. Michael Traill is chief executive at Social Ventures Australia and vice chair at GoodStart Early Learning.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles