James J Heckman, Chicago School Nobel Prize winner – the column

The Catholic Church say ‘give me a child until he is seven’.

Adam Smith thought the age was around eight.

Xavier Herbert said to a lecture theatre full of first years in my first year at uni that by the time you’re thirty five you’re an ‘old bastard’ and won’t change no matter how much other people try to make you.

George Orwell reckoned after you’re forty people don’t care whether you’re a nice guy or not – they want to know what you’ve achieved.

This column is essentially about the striking message of Chicago economist and Nobel Laureate James J Heckman. In short it’s that the years before you get to school are by far the most important and that remedation after that time is very difficult.

I worked hard on this column and was pleased with the result. Thanks to James Farrell, Tony Hariss and especially Andrew Leigh who read a draft and drew attention to weaknesses.

James J Heckman, early childhood and the economics of Eddie McGuire

Last week Eddie McGuire became CEO of the Nine Network. The Council of Australian Governments (COAG) agreed to renew efforts to improve early childhood development, as part of a big new economic reform program. And Nobel Prize winning economist James J. Heckman from the Nobel Prize studded Chicago School of economics visited Australia.

The link between these disparate bits of news? Let me explain.

With vastly increased computing resources and increasingly sophisticated techniques, researchers like James Heckman have been extracting precious clues from the available data about what governs social and economic success.

The best advice they can give you is . . . choose your parents wisely. And not for their money, but for their upbringing.

Heckman argues that families provide crucial developmental building blocks that inculcate intellectual and ‘non-cognitive’ skills, like motivation, dependability and social skills. And these skills hugely influence success or failure throughout life.

Money finds it’s grubby way into the picture. But, the way Heckman tells the story, it’s not so much that parents’ money buys their kids the good life. It’s rather that parents social and economic success is built on their own diverse skills both intellectual and social. They’re then in a position to pass their success onto their children because, as studies demonstrate, they tend to provide richer environments for their children’s’ early skill development.

In Heckman’s slogan “Skill begets skill; motivation begets motivation. Early failure begets later failure.” And the phenomenon runs through generations as much as it runs through individuals’ lives.

Eddie McGuire would agree about the importance of non-cognitive skills. Eddie’s appeal doesn’t lie in his IQ, book learning or the tests he’s passed. But you can depend on his drive to succeed. They say he’s the best networker going; that he can work a room like there’s no tomorrow. His skills helped make Collingwood Football Club the most heavily sponsored sporting club in Australia non-cognitive skills that is.

I doubt I’m telling you anything you don’t know but motivation and people skills matter hugely wherever you are in the workforce. Having spent time with Australia’s CEO’s at the Business Council I can tell you that, al though most are bright (though few are brilliant), it’s their appeal as managers, motivators (and manipulators?) of others that gets them those crazy salaries, not being their firm’s best accountant or lawyer.

It’s the same near the bottom of the workforce. US females with high ‘non-cognitive’ skills virtually never drop out of high school whatever their results.

Heckman’s message is confronting because, if families rather than social institutions like schools dominate the action, they perpetuate intergenerational inequality so it’s that much harder to engineer a fairer society.

He argues that far too much relative policy effort goes into schools, job training and prisons when the damage in early childhood has already been done and its very hard to undo. For instance Heckman finds that the financial costs of hiring teachers to lower class sizes exceeds the benefits.

“The money . . . would be better spent on giving children a savings account”.

If that sounds consistent with the prejudices of the famously free market oriented Chicago School of economics Heckman isn’t preaching despair or ‘benign neglect’.

Though we can’t control family environments like we can schools, Heckman thinks policy can improve early childhood development. And in early childhood, just a little improvement goes a long way.

Since even before President Lyndon Johnson’s ‘Great Society’ programs of the mid 1960s, America has intervened in poor families with special education, health, nutrition, and parent involvement. The programs increase IQ though these effects fade over time. Even so the programs have enhanced kids ‘non-cognitive’ skills giving them enduring lifelong advantages.

Turns out that in crime infested America, good early childhood enrichment pays for itself from lower crime rates alone, leaving aside much better health, education, family stability, wage and productivity outcomes. By contrast with additional school spending, one dollar spent in well directed early intervention generates eight in improved future outcomes and that’s ignoring non-economic ‘social’ gains.

So as Eddie McGuire’s success helps poor kids dream big dreams, we should celebrate Australian governments’ renewed support of the role of early childhood development in making Australia a richer, fairer place.

Now, amid all the enthusiasm (or was that lip-service?) for program accountability, and over three decades after it was first done in the US, what about ensuring that the interventions are properly set up with randomised trials so we can measure their results?

That way policy skill could beget skill rather than failure begetting failure.

The truth if that’s what Heckman’s telling us is sometimes confronting. But it’s also liberating. To paraphrase Reinhold Niebuhr’s prayer, whether or not it gives us the serenity to accept the things we cannot change, it might give us courage to change the things we can by giving us the wisdom to know the difference.

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Craig Malam
Craig Malam
15 years ago

I enjoyed this column, thanks Nicholas. Having gone to a government school in Canberra, but having plenty of private school friends as well, I’ve subsequently observed some correlation between economic success and the ‘work’ done by parents before school age. I’ve also since supposed that pricing of education might therefore serve more of a screening purpose – permiting the economic success of parents to be recognised more broadly or explicitly. Seems this kind of thinking could be consistent with Heckman’s results, if greater spending by parents on education is not buying them as much as might be first thought.

Bai Ren
Bai Ren
15 years ago

I don’t know whether attending a government school in Canberra quite compares with attending a government school in the more deprived suburbs of a state capital.

I don’t suppose there is much difference between the outcomes of the students at Kew (State) High School, Kew, or Genazzano, Kew, or MLC, Kew or Xavier College, Kew.

To get to Kew High School you need to be rich enought to live in the catchment zone. For the others you need to be rich enough to pay the fees.

Spending the school fees on a house in Kew, sending the kiddies to the government school (plus may be a dash of private tutoring) is probably a better long-term investment.

Craig Malam
Craig Malam
15 years ago

Not sure what your point is about government schools in Canberra Bai, but I suppose you are probably right about them being different to those in State capitals (ie. they may not be as good!)

My point was that the money spent on schooling (albeit on fees or on more expensive housing) may also serve to sort children into groups whose parents have had a certain measure of economic success (revealed by their spending). Then the hypothesis goes that this provides a sort of ‘signal’ to employers (and others) about the likelihood of their success.

I’m not suggesting that the quality of schooling that that spending might provide would add nothing to the likelihood of a child’s eventual ecnomic success, but I just thought the potential that this mechanism also plays a part is interesting in light of Heckman’s findings. Maybe the quality effect is not as much as we might think, so the signalling effect indeeds plays a greater role. Your point about Kew would actually seem to back this view.

Jason Soon
Jason Soon
15 years ago

hey, why doesn’t this post appear on the front of the blog???