The Economics of Exclusion

I have had quite a few requests for the slides in the talk I gave at the UN yesterday, prior to the handover of the Power Shift Call to Action. The text and the slides are below (you can click on the images to make them larger). The speech, called “The Economics of Exclusion,” was intended to offer a different, more systems-oriented, way of looking at women’s “inequality.” The panel following showcased practical interventions to include women.

Companies, governments, and charities around the world are instituting programs designed to achieve “inclusive growth.” But if we are going to achieve the goal of an “inclusive” economy, we must first confront the conditions of exclusion—so we will know what actions are really needed, what costs are incurred by failure to act, who needs to collaborate in the effort, and what benefits we might actually gain by solving for inclusion.

Women are the example, because that is the theme today, because it is my area of expertise, and because, objectively, women are the largest excluded group on the planet.

Mostly what we do now when we want to observe women’s economic situation is to track a series of measures that act like inequality thermostats. For instance, in the graph below is an array of indicators for education and employment in the seven most populous Eastern European countries. Everything is expressed as a female to male ratio. The black bar across the middle here indicates the point of equality with men. So, if we look at enrolment in tertiary education, we can see that, in all these countries, the women are considerably more likely to be pursuing higher education than men, something that has been true for a long time. It is therefore not surprising that women vastly outnumber men in professional and technical jobs, even though they are present in the overall labor force in much fewer numbers. Yet, despite women’s greater qualification and presence in higher skilled jobs, employers report that they pay females much less than males for similar work. And, again despite the higher qualifications, women are much less likely to be present in management and ministerial levels—that is, we don’t find them often among the leadership.

The way we normally approach women’s economic situation is by trying to read an array of “thermostats of Inequality.”  I am suggesting we need something more fully-fleshed.

This pattern shows us that a causal relationship the world has banked on for fifty years in fact does not hold: by providing women with equal education, we cannot presume they will be given equal opportunities in employment. (Unfortunately, this has been the lesson throughout the developed world, not just in Eastern Europe.) To truly explain what is going on behind the narrative these data suggest, we would have to posit, test, and measure an entirely different set of causal linkages.

The folk wisdom, of course, is that these women are off having babies, so they have “chosen” not to be fairly paid or promoted. However, that argument does not hold up because this particular set of countries has had declining fertility rates for many decades. Several reached the danger point for population replacement 25 years ago. Because some of these nations also suffer from outward migration, they face a future of overall labor shortages, not just a targeted skills gap. The pattern you see here is costing these countries a lot: a large social investment in education is being wasted, the benefit of diverse leadership is not being realized, and the birth rate will not sustain the future.

This graph is adapted from OECD’s Closing the Gender Gap report from 2011.

Sadly, the situation in Eastern Europe is only the most dramatic illustration of a phenomenon that is playing out all over Europe. Indeed, the consequences of unequal employment opportunities, spread over a generation’s entire lifetime, is setting the stage for a scary scenario for old age pensions. Because they have worked fewer years, been too often part-time, and have been paid less, the women now coming into retirement in Europe will experience a gender pension gap that will be as high as 50% in some countries. These women will have to rely on government services to make up the difference. Thus, the unwillingness to include women fairly in the past is going to come back to haunt these societies in the future.

People inevitably age, but populations do not. The world’s population is aging today in part because we live longer; an equally important propellant, however, is the decline in the fertility rate. In Europe, the average is now 1.5, quite a bit less than the rate required for replacement, which is 2.1

The top graph shows the current age structure for Germany and the projection. The bottom one simply highlights the size of the care burden (large) and the size of the pool of probable care-givers (small).

One of the lowest fertility rates is found in Germany. The graph above shows Germany’s age structure today: old on top, young at the bottom, males on the left, females at the right. The black lines added to the graph delineate where the population will be in ten years. As you can see, most of the people will be over 60. A good number of them will be quite old, coming to the point where physical and mental capabilities usually are compromised. If past is prologue, the care of all these people will fall to the comparatively small cohort of women in the 25 to 45 age bracket. (I’m not saying this is fair. I’m just saying care is a burden usually carried by the women.) This small cohort of females will be responsible for the provisioning of 1 to 6 adults—self, partner, and up to four parents—but almost no children.

As a market configuration, this situation is unprecedented. The advertising world is accustomed to presuming that, as long as the sun sets in the west, moms will keep buying toys, teens will still be a viable point of market entry, and old folks will go on luxury cruises. But this is a situation where the women will buy for elderly parents, some with very limited means, and the youth market will become a memory.

Here I am just circling the men (yellow on the left) to show that they are a small group to be carrying the whole load. (The arrows are meant to emphasize the dim future for baby clothes manufacturers and Happy Meals.)

What you see here is a world-shaking shift in what markets will need to carry. But consider this: how will this cohort of women continue working with so many to care for at home? My bet is that we will see a massive female exodus from the workforce, causing a labor vacuum and a brain drain—and leaving an equally small cohort of men aged 25-45 laboring to pay for the whole sorry mess.

What were we thinking when we allowed the workplace to take such an arrogant attitude toward mothers that they stopped having children? How blind were we when we insisted that having children is nothing more than a private choice, a sweet indulgence for women who really didn’t want to work?

Taking account of the benefits of including women should encompass not just the growth possibilities, but the value of avoiding the costs.

In the coming years, we will experience many other economic dislocations caused by the exclusion of women. Societies need to learn to anticipate and plan for such negative outcomes. Most of the rhetoric around “inclusive growth” focuses on the positive potential to achieve greater prosperity by having more women in the workforce and starting up businesses. But, actually, I think it likely that the bigger economic impact lies in avoiding the costs associated with exclusion, such as the effect of ignoring the care problem, but also the hunger, violence, and disease that we already know is caused by keeping women, especially mothers, vulnerable.

The source for both these pie charts is given in the links within the text.

In order to understand the costs associated with exclusion, however, we are going to have to crash some compartments in our thinking. Take a look at the two pie charts above: red areas are females and blue are male.  In the circle on the left, we have victims of human trafficking, of which the United Nations says just under 80% are female. On the right, we have conventional business loans. According to a US Senate committee, women own a third of the country’s small businesses, but get less than 5% of the available credit. (Or, if you prefer, this circle on the right is the venture capital pie sliced by gender because the proportions would be exactly the same.) We think of these two phenomena as utterly separate. What we need to learn to notice is that they actually are outcomes of the same set of basic factors.

In the poor communities from which humans are trafficked, females are four times more likely to be victims than males in part because women have little ability to earn and thus are seen as an economic burden. They normally spend their time doing unpaid labor, in the form of home care and sexual services. So, when they are sold to slavers who put them into domestic service or the sex trade for no pay, it may seem to buyer or seller that there is little difference in the outcomes. Females are everywhere believed to be inferior, to be less than human, even to have no souls or be barred from heaven—so maybe selling them isn’t seen as a great sin? Finally, slavery is effected through violent coercion, acts that can fade to invisibility against a social backdrop where violence against women is normal and often accepted.

But what about business loans? The first item, economic disadvantage, should be obvious: women are employed less often, at lower levels for less pay, seldom have control over significant assets, and in many countries still can’t even have a checking account, never mind a line of business credit. The excuse often given—and accepted—for women’s lesser economic status is that they spend too much time raising children and doing housework: in other words, they bear a big burden of unpaid labor. The beliefs: women are not as good at math, women are less growth-oriented, women don’t negotiate well. . . you know how it goes, it’s the economic equivalent of “you run like a girl.”

I am convinced that there is a link between money and violence that we don’t understand well enough.

But what about violence?  How does that come into it? In the case of SBA loans or venture capital, many women feel bullied even by small time loan officers and the accounts of sexual harassment in venture capital, especially in tech, are becoming legend. But in the most frequent form of violence—that is, attacks perpetrated by intimate partners—the World Health Organization’s ground-breaking cross-cultural 2005 study told us that a major risk factor is economic inequality between the partners and within the local community. In the UK, a recent study has shown that violence in the home is often preceded by a series of acts designed to take financial control away from the victim—closed checking accounts, maxed out credit cards—so that they can’t leave when the beating starts. A 200 year old pattern still plays out in factory towns from Columbo to Juarez where groups of men stalk young women commuting to and from work, apparently to punish them for not staying in their place. In the US, employers increasingly recognised that  domestic violence affects victims in the workplace. I was amazed when working in a poor rural area in Asia that a major NGO would help women set up businesses, only to have the men burn the shops down.

We have only a superficial sense of what all this violence costs in economic terms: the cost of police time, of medical care, of counseling for children who witness the violence, of worker attrition, and of business failures. But this much is certain: the cost is steep in economic, as well as moral, terms.

OK, so after a decade in a business school, I hate acronyms. Even so, I give you: the Three Bs.

Rather than think about these problems as a set of disjointed inequality indicators, it is more useful to think of it as an ecosystem for exclusion. Women are being held back by a set of behaviors (like violence), beliefs (like “girls are bad at math”), and burdens, (like unpaid elder care). These “Three B’s” act as a tightly restrictive circle that enforces specific places and points of exclusion: school, politics, work, wealth, information, religion, and health care. Thus, whenever you act to include women in one of these domains, you run the risk of a behavior, belief, or burden kicking in to undermine your efforts. As when the women start businesses and the men burn them down. As when the Congress considers an anti-trafficking bill and it is saddled with an anti-abortion rider.   As when Eastern European women are educated, but paid less because they “are just going to have babies.” It is only through a systems-level model that we will really be able to see and solve this problem.

When I was thinking this through, I began with a notion of exclusions as circle holding back women, but then I realized it was the things that hold them in place (the Three Bs) that should take priority.

Failing to try to understand and combat the effects of systemic inequality condemns whole communities to very negative outcomes. One newly-discovered example is in the health area.

The United Nations’ anti-hunger campaign tries to teach us that if women were better included in agriculture—given training, ownership, and access to capital—world hunger would be substantiallly reduced. (In Kenya and India, women do most of the farm work, but own only 1% of the land. This relationship is believed to occur in most developing countries. Globally, women, as a class, simply do not own land.)

But there’s more. The impact of hunger itself also falls disproportionately on women—with truly disastrous and long-lasting results. For many years, people argued that the birth weight of babies varied as a cultural phenomenon. American babies were just bigger, Indian babies just came smaller. But my colleague at Oxford, Stephen Kennedy, and his research partners in the Intergrowth 21 project, have now definitively established that babies would all be the same birth weight if their mothers all had the same food and care. Small babies are born in places where they don’t feed the women. And, unfortunately, females (especially little girls) are fed least and last in many, many cultures around the world.

The Intergrowth 21 project will, I hope, create a radical change in policy and practice.

Hunger reduces birth weights, which not only jeopardizes infant survival in the first few years, but has follow-on health effects that last a lifetime. The biggest damage has, until now, gone unseen, but the Intergrowth21 team has shown it to us. Because infant girls are born with all the eggs they will ever have, poor nutrition and care for each girl, throughout her life even before she has her first pregnancy, negatively affects the health of the next generation. And the generation after that. It’s a Russian doll situation, the biological version of a domino effect.

The solution? The females must be able to have equal access to food and to seek health care on their own volition. (Many in “the West” are not aware that women in developing countries often cannot go to the doctor without their husband’s permission. It is not uncommon for them to die in childbirth because the father was not present to give consent for a physician.)

Equal access to food and health services comes down to the ability to have command over material resources. That is, to be economically empowered. This is one reason why we need the United Nations to put the economic empowerment of women on the list of Sustainable Development Goals. It is not enough simply to resolve to “give” the women more education, more health care, and so on. To expect the women to rely on others for basic needs in a gender system where violence and prejudice will block the way is not realistic. The women must have the capability of fulfilling their needs for themselves—and for their children.

It comes down to this: poverty will remain until the women are free. This is not just an opinion. It is something we know. We need to act like we know it.

Economic thought has become pretty rigid and really is in no condition to take this challenge on. We don’t want to throw the baby out with the bath, but we are really going to need some radical rethinking, I suspect.

Reinstating the conceptual connection between production and reproduction, once basic to economic theory, must be the first step toward unlocking the way we think about the well-being of the world. The problems caused by women’s economic exclusion are huge and interconnected, but are seldom addressed as part of “economics.” Unpacking these problems will need new concepts, new measures, and new algorithms to show the connections. We need to get started on all that.

We must prioritize women’s economic empowerment in the post-2015 UN Development Framework. The exclusion of women hurts everyone and, in the end, helps no one. By keeping women subordinate, we forego the positive benefits of better resource use and higher growth rates, to be sure, but, as I have tried to show here, that is not the whole picture. The full impact of this exclusion encompasses the elder care crisis, the burgeoning of the slave trade (and the organized crime that supports it), violence in the streets, hunger, disease, and a down-the-generations health effect that is horrible even to contemplate.   Some scholars are beginning to argue that the gender gap contributes to armed conflict and to environmental degradation. Instead of focusing so doggedly on a laundry list of what we think are discrete goals, we would do better to attack a cancerous systemic mechanism that mightily undermines any effort to achieve those goals—that is, the exclusion of women.

The exclusion of women diminishes the whole world.

Let me add one more cost. We can total up the dollars for police calls, jobs lost, and emergency room visits—and it will be a lot. All these costs added together, however, are nothing to the price we pay with our souls. With the 50th anniversary of Selma upon us, we are seeing again films that document the horrible, violent prejudices that whites inflicted on blacks in mid-century America. As I have mentioned in previous blogs, these images echo painfully in my childhood memories. It cost my culture dearly to maintain that hatred. This system against women has a face that is just as ugly.

The UN seemed like a good place to appeal for a global, cross-cutting approach to this issue. And I am hoping the attention will help get the cause on the SDG list.

Women are not a minority and they are not a special interest group. They are not only white or black or Muslim or Christian or Hindu: they are half the species, of whatever color or creed. What hurts half affects all. Women, too, are citizens of the world. It is time for the UN—and all nations—to treat them with the same respect and concern they treat the male half of global citizenry. An inclusive world is a safe, healthy, and prosperous one. It is what we all want.