The View | Early investment in the disadvantaged key to closing inequality gap

During his 2013 State of the Union address, US President Barack Obama referred to University of Chicago professor James Heckman's findings of a 7 to 10 per cent return on investment per annum for certain early childhood education programmes. These rates of return are higher than those in the stock market between 1945 and 2008.

Heckman is among the 10 most influential economists in the world. He won a Nobel Prize in Economic Sciences in 2000. His work has revolutionised our thinking about the emergence of an underclass in the US and Europe and shows why current policies to reduce inequality and poverty in many parts of the world, including Hong Kong, are ineffective.

Everyone knows education boosts productivity and enlarges opportunities, so it is natural that proposals for reducing inequality emphasise effective education for all.

But according to Heckman, "existing solutions ignore a powerful body of research in the economics of human development that tells us which skills matter for producing successful lives. They ignore the role of families in producing the relevant skills. They also ignore or play down the critical gap in skills between advantaged and disadvantaged children that emerges long before they enter school".

His path-breaking research shows the rate of return to a unit dollar invested in human capital is the greatest in the prenatal period, followed by zero to five years of age.

Heckman synthesised two unrelated streams of literature - the human capital approach to health economics and the economics of cognitive and non-cognitive (character-building) skill formation - to help us understand the origins of human inequality.

He found that ability gaps between individuals and across socioeconomic groups opened up at early ages, for both cognitive and non-cognitive skills, as did gaps in health status. These gaps are highly correlated with family background factors such as parental education and maternal ability.