Making Childhood Pay: Arthur Rolnick, Steven Rothschild, and ReadyNation

Reposted with permission from Wrench in the Gears.

Pre-K Teachers Heart Tech

The push for early childhood education access is NOT being driven by a desire to meet the basic human needs of children. Rather financial interests that view children as cogs in a national workforce development program are pushing it; and they see preschoolers as lumps of human capital to be plugged into economic forecasts. This is all happening at a time when human services are being privatized in the name of scalable, outcomes-driven social entrepreneurship. The trailer for a new documentary, The Invisible Heart, on social impact bonds indicates how much capital is flowing into this new market.

This post provides additional background on the ReadyNation Global Business Summit on Early Childhood Education that will take place at the Grand Hyatt hotel in New York City November 1-2, 2018. No U.S. educators or policy advocates may attend unless they come with at least four pre-approved business sponsors. Review the draft agenda here.

This is the second in a series. Read part one here.

Where did ReadyNation come from?

The idea emerged from a conversation three men had on a conference call during the summer of 2003:

  • Arthur Rolnick, senior researcher at the Minneapolis Federal Reserve
  • Robert Dugger, financial policy analyst and venture capitalist
  • James Heckman, University of Chicago economics professor

Its first incarnation, the “Investing in Kids Working Group,” focused on researching returns on early childhood investments, developing finance mechanisms, and crafting policy recommendations. Over the past fifteen years Dugger, in consultation with Heckman and Rolnick and with support from the Pew Charitable Trusts, gradually built a structure to undergird a global investment market fueled by debt associated with provision of early childhood education services.

The push for early childhood education access is NOT being driven by a desire to meet the basic human needs of children. Rather financial interests that view children as cogs in a national workforce development program are pushing it; and they see preschoolers as lumps of human capital to be plugged into economic forecasts. This is all happening at a time when human services are being privatized in the name of scalable, outcomes-driven social entrepreneurship. The trailer for a new documentary, The Invisible Heart, on social impact bonds indicates how much capital is flowing into this new market.

Arthur Rolnick, Steven Rothschild, and Pay for Performance

Much of my research has focused on the Boston area (global finance), the Bay Area (tech), Chicago (blockchain), and New York (urban policy). So I was surprised to find what may be a key piece of this puzzle actually comes out of Minneapolis Minnesota. Though perhaps the fact that Minnesota is home to the nation’s first charter school, City Academy that opened in St. Paul in 1992, indicates local conditions favor neoliberal reforms.

Arthur (Art) Rolnick spent his 40-year career as a senior economic researcher at the Minneapolis Federal Reserve Bank. During that time he also served as an associate professor in the economics department of the University of Minnesota and was co-director of the Human Capital Research Collaborative in the Humphrey School of Public Affairs. The Collaborative houses the Chicago Longitudinal Study whose researchers are tracking the short and long term effects of early intervention on 1,000 students who attended Chicago’s Child-Parent Centers in 1984-85.

The Chicago Child-Parent Centers were service providers for one of the nation’s first two early childhood social impact bonds, begun in December 2014. The Chicago SIB included payout metrics tied to third grade literacy scores. Thus far the program has issued maximum payments to investors including Pritzker, Goldman-Sachs and Northern Trust. According to this report from the Institute for Child Success, it is possible that over the seventeen-year time horizon for the SIB, $34 million could be paid out on the initial $16.9 investment.

Click here for the interactive version of this map.

Rolnick connected with Steven Rothschild, a former vice president at General Mills who left the corporate sector and launched Twin Cities RISE!, an “innovative anti-poverty” program that provided workforce training for low income adults, in the mid 1990s. Rothschild arranged with the state of Minnesota to provide services via an outcomes-based contracting arrangement where the organization was only paid when the “economic value” they provided to the state by increasing taxes (paid by those placed in jobs) and decreasing state expenditures (reduced costs for social services or incarceration) met approved targets.

Arthur Rolnick and Gary Stern of the Minneapolis Federal Reserve worked with Rothschild and Twin Cities Rise! to develop the economic analysis in support of the outcomes-based contracting initiative. Rolnick’s work with Rothschild eventually led him to examine the economic implications of early childhood interventions using data from the High/Scope Perry Preschool Study. In 2003, the year Rolnick had that auspicious phone call with Robert Dugger and James Heckman, he and and Rob Grunewald, regional economic analyst, put out the following report for the Minneapolis Federal Reserve: Early Childhood Development: Economic Development with a High Public Return.

In a 2006 profile of Rolnick, Minnesota journalist and blogger Kevin Featherly notes that report catalyzed $1 million in seed money for the Minnesota Early Learning Foundation, a project of the Minnesota Business for Early Learning. It also put Rolnick and Grunewald on the lecture circuit for the next several years where they touted early childhood education as a prudent economic investment. Weatherly likened Rolnick’s schedule after the release of the report to that of a presidential candidate, sharing the stage with Jeb Bush at the National Governor’s Convention, the head of the Gates Foundation at the National Council of State Legislatures, and presenting to a global audience at the World Bank.

Rothschild who served on the boards of the Greater Twin Cities United Way and Minneapolis Foundation, went on to found the consulting firm Invest in Outcomes and write the Non Non-Profit, a book that exhorted non-profits to focus on the Return on Investment (ROI) and measurable economic outcomes of the services they provide. These ideas eventually led the Minnesota legislature to adopt the “Pay for Performance Act” in 2011 that appropriated $10 million for a pilot program to develop Human Capital Performance Bonds or HuCaps.

Rothschild provides a detailed explanation of how HuCaps function in a 2013 article for the San Francisco Federal Reserve’s publication Community Development Investment Review. HuCaps differ from social impact bonds in that they are true bonds and tap into the state bond markets; which, in theory, could give them access to significantly more capital-trillions of dollars rather than millions. In this podcast with the St. Louis Federal Reserve, Rothschild describes the model developed by Twin Cities RISE! as the basis for much of the social impact investing activities that have emerged over the past decade.

Source for this slide.

As structured in the Minnesota legislation, the service provider is the one that takes the risk rather than the investor. If the provider is not able to meet the target metrics they are the ones who will not be paid. As a consequence, HuCaps have not yet taken off; see Propel Nonprofit’s analysis here.

Source for this slide.

Nevertheless, there are those who have not given up on the Human Capital Performance Bond approach. Arnold Packer, former director of the education reform and workforce development SCANS 2000 Center based out of Johns Hopkins University, wrote about HuCaps for the Brookings Institution in 2015 (the co-chair of the Commission on Evidence-Based Policy Making is Bruce Haskins also of Brookings). He noted that Milton Friedman was among the first to float the idea of leveraging private investment in human capital development. Take a minute to watch this one-minute video, from Institute for the Future, that portrays a college student contemplating entering into an income-sharing arrangement in exchange for tuition.

The idea that states could issue bonds for human capital in the same way they do for infrastructure like bridges, and that future savings will be created as people attain higher paying jobs due to their improved human capital, is central to the HuCap premise. In order to justify future cost savings, those receiving services must be tracked, so their “outcomes” can be measured over time. According to Arnold:

“This reform requires a shift in thinking on all sides, investors in human resources (early childhood education falls into this category) will have to consider statistically estimated benefits in terms of future cost savings and revenue as equivalent to projected revenue from a toll road. Government agencies will have to coordinate in order to structure attractive Human Resource bonds, since different agencies at different levels of government, benefit from the savings resulting from earlier investments.” Source

This model of finance, if ever widely adopted, would demand all recipients of public services (including education) be part of the government’s statistical estimate. Because many early-intervention services are directed at families, a person’s predictive profile would likely start to be amassed prenatally; babies assigned a Decentralized Identifier (DID), before they are even born. Estimates would be made about the likelihood a person would need to access services in the future, what those services would be, and what they would cost. Assessments would be made about the anticipated tax revenue a person would in turn generate over their lifetime. All of this data would need to be calculated in order to determine the impact metrics for the investors and structure “attractive human resource bonds.”

Before the rise of cloud-based computing, such a level of tracking would have been impossible. Having access to data to make those predictions would have been difficult to obtain. But that is rapidly changing in this world of Big Data, digital identity and “moneyball for kids.” The bi-partisan Commission on Evidence-Based Policy Making concluded public hearings in February 2017, and the vast majority of those providing testimony favored creating enormous pools of data to inform public policy decisions.

Evidence Based Policy Making

Read the report.

Responsibilities of the Commission on Evidence Based Policy Making:

Things seem to be on hold for the moment with Human Capital Performance Bonds, but I feel strongly they may be simply waiting in the wings until Blockchain sovereign identity is normalized. An Illinois state Blockchain task force (note Pritzker, backer of early childhood SIBs is running a well-funded campaign for governor of Illinois now) has developed preliminary recommendations linking public service benefits to citizens using Blockchain technology. They even envision building in behavioral incentives tied to the provision of services through digital economic platforms. See the diagram below for an illustration of how they might incentivize food purchases.

Read the report.

Of course the implications of this type of manipulation for people who live in food deserts with limited access to fresh produce remains unaddressed. And it doesn’t take a stretch of the imagination to see how other choices might be economically incentivized: which online course to take (the evidence-based one); which training program (the evidence-based one); which therapy provider (the evidence-based one); which medical treatment (the evidence-based one). But by whose measure? Who sets the metrics? Who profits when “evidence-based” standards are imposed?

How will independently-owned, neighborhood-based child care centers fare in this new landscape? If they are shuttered, what will the economic impacts be for communities, especially in economically distressed neighborhoods where such businesses are important sources of employment? Will small-scale providers be willing to collect the “human capital” data required to take advantage of pay for success investments? If they are willing, would they even have the money to purchase the technology (smart tables, anyone?) required to gather their “impact” evidence?

Rob Grunewald, Rolnick’s collaborater on the Federal Reserve Early Childhood paper, is on the ReadyNation Summit planning committee. Rolnick is part of a workshop, “Scalable Success Stories in Early Childhood Programs,” at 11:45 on Friday, November 2nd.

The “pay for performance” finance mechanism dreamed up by Rothschild and Rolnick in the 1990s is particularly well-suited to this age of Internet of Things data collection, surveillance, predictive analytics, financialization, and economic precocity. This is why we should all be very concerned about ReadyNation’s Global Business Summit on Early Childhood; especially because it so clearly discourages early childhood educators and policy advocates from attending.

Next up, Dr. James Heckman and the Institute for New Economic Thinking.

-Alison McDowell

 

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The Comforting Lie of Basic Income and the Unpleasant Truths about the Platform Economy

Knightscope security robot

The powers that be have big plans for remaking the economy. Unfortunately, it doesn’t include living wage jobs or security of any sort for a vast number of citizens.

Amazon’s Mechanical Turk is a sobering example of what’s in store for workers in the coming platform economy.  A recent study found 3.8 million jobs had been completed by 2,676 workers using the MTurk platform as an intermediary between employer and employee. Of this sample, the median hourly wage for most workers was $2/hour, with only 4% of the total workers able to earn more than $7.25/hour.

No wonder the technology monopolists love the idea of a basic income, albeit for self-serving reasons.

First, there is the traditional libertarian argument against the intrusiveness and inefficiency of the welfare state – a problem that basic income, once combined with the full-blown dismantling of public institutions, might solve. Second, the coming age of automation might result in even more people losing their jobs – and the prospect of a guaranteed and unconditional basic income might reduce the odds of another Luddite uprising. Better to have everyone learning how to code, receiving basic income and hoping to meet an honest venture capitalist.

Third, the precarious nature of employment in the gig economy no longer looks as terrifying if you receive basic income of some kind. Driving for Uber, after all, could be just a hobby that occasionally yields some material benefits. Think fishing, but a bit more social. And who doesn’t like fishing?

Does earning $2/hour seem less terrifying on top of a basic income?

I’m not convinced, but there’s plenty of progressive thought leaders who are willing to jump on the bandwagon.

For example, The Economic Security Project recently held their first ever CASH Conference to re-imagine the economy and redefine work. Of course, a basic income scheme was the glue that was going to hold the whole thing together.

The Economic Security Project invites you to our first ever CASH Conference this fall in San Francisco. We will meet at the historic Old Mint, a building that once housed a third of our nation’s wealth, to reimagine what an economy built on the well-being of everyone could look like. We want to redefine what ‘work’ means and explore how a basic income could provide economic stability to Americans and fundamentally change society. Come hear former SEIU president Andy Stern on the future of work, State Representative Chris Lee on how to move politics forward, and Elizabeth Rhodes from Y-Combinator with an update on their basic income pilot in Oakland. We’ll talk to experts about the evidence for unconditional cash, examine why a basic income may be our best shot at alleviating poverty, surface the history of a guaranteed income in the fight for civil rights, and look at the kind of societal shifts automation could bring. We are bringing together artists, academics, activists and curious newcomers for a day of challenging conversations as we forge ahead towards a more secure future, and we want you there.

Alleviating poverty and fighting for civil rights, sounds so progressive, right?

But if you take the time to dig down, some inconvenient facts begin to surface. One of the most uncomfortable being that one of the progressive champions headlining this conference is more than willing to sell out workers for a seat at the table.

Meet Andy Stern, who uses his past relationship with SEIU as his progressive badge of honor. Never mind that during his time as union head he repeatedly undermine workers and – take special note education activists – later joined the board of the Broad Center, an organization hostile to public education and the teachers unions.

When it comes to the future of work, I don’t want Andy Stern speaking on my behalf.

But organizations also assume the same role as activist leaders  – masquerading as progressive champions while settling for market based solutions that don’t disrupt the interests of their monied benefactors.

The Y Combinator pitch for it’s basic income pilot is a perfect example of settling for the status quo and treating the symptoms rather than tackling the root cause of inequality.

What’s even more disturbing is the Y Combinator’s unquestioning acceptance of the radical remaking of the economy to further serve the interests of the rich and powerful. Think about it: if restructuring the economy is this easy, why isn’t the Y Combinator advocating for a humane system that ensures everyone gets what they need from the get go?

This fake progressivism starts to make sense once you take a look at two intertwined forces bent on destroying traditional institutions and replacing them with technological solutions which will consolidate power for those that control them: the platform economy and big data.

The platform economy creates a digital middle man between workers and employees. The platform handles the money and logistics while the worker covers most of the costs of doing business (insurance, health care, upkeep). Jobs become a string of temporary projects or gigs. Amazon’s Mechanical Turk is an example of the platform economy. 

Big data is the lubricant that keeps the whole system running – from the practical to the Orwellian. It picks up the garbage and enables new ways to create and extract wealth by data mining citizens in a total surveillance society. It allows capitalism to decouple wealth creation from the physical world and jump to the virtual. Total data collection opens up the opportunity for financial speculation, granular commercial targeting, and invasive state interventions into the lives of “troubled” citizens.

The Y Combinator basic income plan wraps the platform economy and big data into a human friendly package. First, it gives cover to and accepts as inevitable, the coming dominance of the platform economy. Second, it has the appearance of socialism – free money for everyone – while downplaying the true cost of this program.

What’s the true cost? Total surveillance of your personal habits, health, political activity, financial activity and education choices – with the understanding that the state may need to step in and nudge targeted citizens if they become a drag on the system.

If data is the new oil, then the Y Combinator basic income plan is a gusher.

Of course, the Y Combinator isn’t putting all of its nest eggs in one basket. This start-up incubator already has a whole division devoted to education with an emphasis on “the application of technology to enrich and transform education for all learners”. Ed-tech graduates of the program include: ClassDojo, Clever, MakeSchool, Padlet, Panorama Education, Platzi, and Remind.

But the problem goes much deeper than fake progressive leaders and organizations putting their stamp on anti-worker and market based initiatives.

How deep?

Guess who first pitched the idea of a basic income?

Milton Friedman, father of neoliberalism, who gushed after Katrina:

Most New Orleans schools are in ruins, as are the homes of the children who have attended them. The children are now scattered all over the country. This is a tragedy. It is also an opportunity to radically reform the educational system.

One thing about Milton Friedman, he was a true free-market champion and didn’t hide his intentions behind feel good double-speak like today’s education reformers and fake progressives.

He also called his basic income idea what it truly was: a negative income tax.

What’s a negative income tax?

The idea being poor people would get a portion of their designated negative tax payment back from the state as a cash reimbursement. The catch? These payments would be covered by cuts to existing government services like food stamps, social security, remnants of existing welfare programs and any other government initiatives designed to assist the poor.

Not only is this much less progressive than advertised, it provides the technology monopolists another market to exploit by leveraging and building upon the data collected by a basic income program.

Who needs any form of government when various online platforms can offer every kind of social service imaginable while Wall Street provides the funding through social impact bonds?

-Carolyn Leith