The Economic Rationale for Investing in Children: A Focus on Child Care. Area Redevelopment Rationales


There is considerable overlap with this category and previous categories. However, the major focus here is on "place-based" concerns versus individual concerns.

There has long been a concern about concentrations of disadvantaged persons in specific geographic areas. In some cases these are broad geographic designations, e.g., the Appalachians, the Mississippi Delta; in other cases they are smaller areas within broader geographies, e.g., inner city neighborhoods. In these cases, the focus has been on improving the "place" in order to benefit the disadvantaged persons residing there.

There has long been a tension between advocating improvement of the places where disadvantaged people reside and advocating moving the disadvantaged people to places where people may have better opportunities. In the case of inner city neighborhoods, this tension has been summarized in the apposition: "gilding the ghetto versus dispersing the ghetto."

Public investments have been rationalized in terms of some "place based" strategies that in turn relate to the labor market. It has long been argued that weakness in infrastructure and other facilities discourages business from moving into areas where many disadvantaged persons reside or that such weaknesses have led to the exit of business from such areas. In either case, the result would be lower employment opportunities. Thus the infrastructure investment is linked to the employment rationale.

Public investment in training and employment is justified under the rubric of "improving infrastructure" by providing a skilled labor force to attract or to hold industry in a given area.

A more convoluted argument arises from the "infant industry" (no pun intended) rationale for some activities to gain comparative advantage for a region. The argument is that some economic activities need, at the early stage of their development in a given region, protection from "excessive competition". Such protection is necessary in order for them to better learn how to implement the technology of that industry. They need to grow large enough to realize the economies of scale that, in turn, allow them to reach costs of production low enough for them to compete effectively in the wider market. Public investments could take the form of "protection against excessive competition", e.g., licensing requirements; special preferences in bidding for public contracts, e.g., minority set asides; or, more relevant, subsidization of the input costs (skills training, wage subsidies) or demand subsidies, e.g., health insurance subsidies.

Clearly a number of previously enumerated rationales apply to these area redevelopment situations, e.g., poor information, spatial mismatch.

Applications to Child Care of Area Redevelopment Rationales

I have already suggested the ways in which "place-based" problems can give rise to distributional rationales for public intervention in the child care market. Child care is a piece of the social and economic infrastructure that is necessary for sustaining healthy communities. Improving the quality of the labor force, which in turn serves to attract or hold industry, may  for many of the reasons listed above  require adequate child care. In at least one case that I am aware of in a rural area, the public provision of space for a child care facility within the area of an industrial park was said to have played an important role in drawing industries to locate in that area.

The "infant industry (again with apologies) protection" argument can be applied to child care in two somewhat peculiar ways. First, most child care providers are notoriously bad at management, particularly financial management(18). Public sector investment to help providers "move up the learning curve" in business management can be an "infant industry" type justification. Likewise, creating adequate effective demand in a place one hopes to redevelop can help providers to realize such economies of scale as might exist. The vicious cycle of underdevelopment where, e.g., the lack of skills in the work force leads to the lack of employment opportunities which leads to a further lack of skill development, can apply to day care as well. The lack of sufficient demand for good quality child care in an area can lead to its lack of development; good quality center-based care may not develop in an economically depressed area unless there is subsidization (of either the provider or the parents, or both) for a period of time to create effective demand.

The area redevelopment rationales would appear to apply most to arguments for investment in quantity of child care.