Womenomics: Unlocking Women’s Not-So-Hidden Economic Potential

womenomicsIn the perpetual quest to improve economic growth and prosperity, leaders often ask questions such as: “How can we attract business to our shores?” “What can we do to raise export levels?” “How can we innovate to compete in the global economy?” While these questions are crucial to economic success, many developing and even some developed nations overlook an abundant and easily accessible driver of economic growth that makes up around half the world’s population: women.

Utilizing women to their full potential can play a crucial role in raising productivity and economic output. According to the World Bank’s 2012 World Development Report, women now represent 40 percent of the global labor force and more than half of the world’s university students. It seems obvious that allocating women’s skills and talents in activities that make the best use of those abilities will result in tangible economic benefits. In 1950, only one-third of American women of working age had a paid job. Yet today, US girls now do better at school than boys, more women are getting university degrees than men are, and females run some of the world’s best companies, such as PepsiCo, Archer Daniels Midland and W.L. Gore. Furthermore, a study by McKinsey found that when women went from holding 37 percent of all US jobs to nearly 48 percent over the past 40 years, the productivity gains associated with this modest increase accounted for approximately one-quarter of our current GDP. Undoubtedly, unlocking the economic potential of women has contributed to the sustained economic growth of the US over the last decades.

However, economies where women are not well integrated in the work force face significant disadvantages. This loss of productivity and economic duress is illustrated in the case of Japan, which has faced persistent economic stagnation. According to Kathy Matsui, chief Japan equity strategist and co-head of Asia Investment Research at Goldman Sachs, “Narrowing the gap between male and female employment rates, through increased participation of women in the labor market, could help Japan’s economy grow.” For example, 70% of Japanese women leave the workforce after their first child, and only 65% of college-educated women are employed. Barriers to higher female employment include insufficient childcare and nursing care support, tax distortions, and inadequate focus of the private and public sectors on diversity. It is no coincidence that Japan’s economy has struggled as women continue to be systemically underused.

Better enabling women to enter the labor force should be a key priority in nations looking to increase economic growth. The Economist reports that the increase in employment of women in developed countries during the past decade has added more to global growth than even the economic emergence of China. Therefore, it would serve countries well to eliminate obstacles that prevent women from entering the workforce and create programs that encourage the participation of women in the economy.

Posted by: Matthew Goldberg

Sources: The Economist, Goldman Sachs, World Bank, McKinsey, AARP International

Photo Credit: Woman working courtesy of flickr user SMU Central University Libraries

How Important is Government to Innovation?

r&dThe US government must soon begin to make tough decisions about how to most effectively balance the budget. The key to resolving this issue is to figure out how to cut spending responsibly without hindering the government’s capacity to promote growth. A significant question that arises from this debate is whether national expenditures on research and development are useful for fostering innovation.

The conventional belief is that innovation is born through competition in the private sector. However, this may overlook the crucial role that government plays in the development of key technologies. The government provides something that the private sector cannot: cost-is-no-object engineering. With their singular aims and large purse, government programs are not restrained by profit-making like the industries in the private sector. It often takes patient, determined, or plain foolish capital, and a lot of it, to turn high-concept ideas into functional prototypes and a body of knowledge capable of driving private innovation and production. Government support for innovation obviously turns up its share of duds, representing a waste of real resources that could have gone toward some other end. Yet, as history has shown, amazing things happen when government investment succeeds. Take the initiative shown during the formative years of the computing era; the government was an enormous source of demand for all the intermediaries of computing power production and computing power itself. America’s military machine brought brilliant people together, demanded they do work requiring extraordinary computational power, and plied them with the funds to develop and build early computers. That work created expertise, component supply, and even private demand that fueled subsequent private investments.

This of course does not diminish the private sector’s vital role in innovation development. In fact, government investment and free-market improvement are almost symbiotic. Forbes lays out two key points that explains the co-dependent nature of the government and the private sector in innovation advancement.

1.)     Reliance on the government to invest in early innovative research because free-market actors cannot do so profitably by themselves;

2.)     Reliance on the free-market to competitively finish the later part of the innovation process because the government cannot realize its return on research investment otherwise

Therefore, it is vital that Congress adopts a budget plan that does not hamper the government’s ability to invest in innovation. US economic success is firmly rooted in technological innovation and this budget debate is a key moment in determining the future of the US economy.

Posted by: Matthew Goldberg

Sources: The Economist, Forbes

Photo Credit: Army scientists energize battery research courtesy of flickr user RDECOM

A Health Care Nation

health care nation2013 will be the year that America becomes “The Health Care Nation”, according to a recent article in Fortune magazine. Reactions to the new health care law will make health care the center of national attention once again, with the majority of the Patient Protection and Affordable Care Act’s provisions scheduled to take effect on January 1, 2014. The Centers for Medicare and Medicaid Services predict that by 2020: health care spending will have reached 20% of GDP (with 50% of that amount provided by the government), growth in national health care expenditures will outpace GDP growth by 1.1% on average, and Medicaid expenditures will grow 20% in 2014 alone due to increased coverage. Meanwhile, a recent Bank of America poll of leading CFOs reports that 60% cite health care cost as a key economic concern for the nation and 58% cite health care cost as a key economic concern for their company. The only greater concerns are in regard to U.S. government effectiveness and the budget deficit, both of which are strongly affected by health care costs.

Economists disagree over whether or not rising health care costs harm American businesses’ competitiveness in global markets, a crucial question due to the fact that the US spends far more on health care than any other country. The Council on Foreign Relations recently released an “Expert Roundup” on this topic. Robert Graboyes of the National Federation of Independent Business took the position that new health care legislation is hurting American competitiveness because it creates an uncertain financial planning environment and Neeraj Sood of the University of Southern California claimed that “rising healthcare costs have significantly reduced employment and output growth among U.S. businesses”.  Jennifer Baron of Harvard University insists that the indirect costs of poor employee health, such as low productivity, are twice the cost of benefit spending and so the emphasis should be placed on improving wellness rather than controlling spending on insurance plans.

Rapidly rising health care costs have been shown to negatively impact both businesses and workers. It is a common view among economists that increases in health care costs are offset by lower wages in the market-based system of employer-provided health care. A study by the RAND Corporation claims that since wages are generally sticky and do not react quickly to market value changes, rising health care costs can have negative impacts on businesses’ cost competitiveness, employment levels, revenues, and value added. This effect is exacerbated in industries that offer coverage to most of their employees, such as the automobile industry, and have less of an effect on industries that do not, such as retail. To make matters worse, a study by the Institute of Medicine posits that up to 30% of national health care expenditures are wasteful due to excessive cost, unnecessary treatment, and missed prevention opportunities.

Obviously, health care is a rising concern for the U.S. government, American businesses, and individual Americans. The issue will take years if not decades to be corrected, but a sustainable trajectory for health care costs must be found to ensure U.S. economic stability. It will be up to lawmakers to decide whether a focus on costs, value, or employee wellness is most appropriate (or most likely some combination of these factors). No matter what decisions are made, they are sure to affect every American in this “Health Care Nation”.

Posted by: Ben Copper

Sources: Fortune, Bank of America, Center for Medicare and Medicaid Services, Council on Foreign                          Relations, The Economist, RAND Corporation, Health Affair, Institute of Medicine

Photo Credit: Hospital Bed, courtesy of flickr user: APM Alex

Guest Contributor William Krist with Dani Litovsky: LNG – to export or not to export, that is the question

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The United States is rapidly moving from being dependent on imported fossil fuels to becoming a major world producer.  We’re sitting on vast supplies of natural gas, and recent technological innovations have made it possible to tap previously unattainable resources.  So what should we do with these new-found riches?  Producers of natural gas, by and large, want to be able to sell where they can get the best price, and often that will mean selling overseas.  But consumers oppose exporting our natural gas, arguing that keeping these supplies to ourselves will keep the price here in the U.S. lower than the world price, and that this will give them a competitive advantage.  They believe this will add more value to the economy and trade account than exporting LNG.  And some environmentalists oppose exports because they believe this would raise the price of natural gas and thereby encourage more production.

From an economic perspective, allowing exports would lead to some increase in domestic prices, but the price of natural gas in the U.S. is far lower than in many other markets, for example, $2.66 per thousand cubic feet on average in the U.S. in 2012 compared to some $10 in the U.K. Somewhat higher prices in the U.S. because of exports would encourage greater U.S. production, but prices in the U.S. would still be lower than in most markets because of transportation costs, and this would continue to give manufacturers that use natural gas a cost advantage.  From an environmental perspective, natural gas is less polluting than other fossil fuels.  Until renewable energy such as wind and solar can meet the world’s energy needs – a prospect that is likely to be at least a decade away – encouraging the use of natural gas probably has a positive environmental impact.

From a trade policy perspective, restricting exports would likely run afoul of World Trade Organization (WTO) rules, and it would weaken our complaints about other countries’ export of vital minerals, which many believe is an attempt by China to gain a competitive advantage at its trade partners’ expense.

The economic impact of allowing natural gas exports is likely to be small, as is the environmental impact.  So perhaps this debate is more like “much ado about nothing.”

(Click here for a paper that sets out these issues in more detail.)

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment.

Do traditional measurements misinterpret global trade?

global communicationsAs the world economy becomes more interconnected, it has become clear that import/export trade figures by themselves do not fully capture how much the US contributes to global commerce. Imports and exports merely measure the trade in completed products between nations and present a flawed picture. On the other hand, metrics such as US foreign affiliate sales provide information on longer-term investment and entrenchment in foreign markets, thereby giving a substantially different, and perhaps more accurate, look at what the US provides in goods and services.

Taking a look at exports trade data, a country like Ireland looks inconsequential to US trade with only $7,276 million (USD) in exported goods. However, Ireland is actually an important hub for transnational companies, and rakes in huge amounts of investment as shown by the foreign affiliate sales which puts Ireland at around $171,895 million, a number that eclipses Mexico at $143,478 million. Using only exports, Mexico is our number two trading partner for exports, but when we use the Sales/Export ratio, Mexico stands at 0.9, whereas Ireland is at 23.6.Without accounting for foreign affiliate sales, policy makers would have no idea of the importance of Ireland to US commerce. In addition, using foreign affiliate sales sheds light on other trade relationships, including Germany a country that many policymakers are worried about due to our supposed trade imbalance. In actuality, while US exports with Germany are only at $48,161 million, the US foreign affiliate sales are at $244,785 million and a ratio of 5.1. This means that the US is very much invested into Germany and the trade imbalance is not as nearly as significant when looking at both sets of metrics. This also presents an interesting note on the relative significance of trading partners. Policy-makers often stress the importance of China to US trade, but when looking at foreign affiliate sales, China is only at $138,991 million compared to Germany’s $244,785 million. This has the implication that the US actually has more trade interests in Germany, which is something that is completely unacknowledged when measuring using only export trade.

Using only export numbers presents an incomplete depiction of US trade. It is very difficult to make smart policy that improves US trade potential if the true trade relationships between the US and foreign countries are not understood. In terms of trade importance to the United States, opportunities lie with the newly proposed Trans-Atlantic Trade Agreement at almost $1,473,483 million in foreign affiliate sales. The United States must begin to rely more on foreign affiliate trade data or at least use it to supplement traditional import/export measurements to get a more accurate representation of US trade interactions.

Posted by: Matthew Goldberg

Sources: U.S. International Trade Commission, Vox, OECD, U.S. Census Bureau

Invitation: Money and Banks in the American Political System Book Launch

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The Program on America and the Global Economy Presents a Book Launch:

Lavelle_book

Money and Banks in the American Political System

Thursday, March 14, 2013

3:00 – 4:30 p.m.

Featuring:

Katie Lavelle, Author, Ellen and Dixon Long Professor at Case Western Reserve University, and Wilson Center Fellow ‘08-‘09

Moderated by:

Kent Hughes, Director, Program on America and the Global Economy

About the author: Kathryn C. Lavelle is Ellen and Dixon Long Professor of World Affairs in the Department of Political Science at Case Western Reserve University. She is the author of Legislating International Organization: The US Congress, the IMF, and the World Bank (2011) and The Politics of Equity Finance in Emerging Markets (2004). She served as the William A. Steiger Fellow in the American Political Science Association’s congressional fellowship program, where she worked on the staff of the House Committee on Financial Services. Kathryn also served as a United States Studies Fellow at the Woodrow Wilson Center from 2008 until 2009.

About the book: “With the 2008 financial crisis still sending shockwaves through the US economy, debates over money are embedded in national politics and contemporary conceptions of the American dream. In Money and Banks in the American Political System, Kathryn C. Lavelle explores the complexity of the political institutions that surround finance, and traces the modern instability to the nexus between market innovation and regulation in a society that is wary of allowing business and state to interact and suspicious of any concentrated power in one political or economic institution.”

Please RSVP acceptances only to page@wilsoncenter.org

For a map and directions see: http://www.wilsoncenter.org/directions

Please bring photo ID and arrive 15 minutes ahead to allow time for the security checkpoint.

Sequestration: A Harsh Reality

knife & billIn the second part of our two part series on sequestration, we are disheartened to report that $85 billion in cuts are due to take effect today as Congress failed to reach a deal to avoid sequestration. This development could hurt US growth prospects and dampens domestic and international confidence in Congress.

The sequester is reported to have a variety of deleterious effects on the US economy. Deutsche Bank’s chief U.S. economist, Joseph LaVorgna, stated that the sequester could take 40 basis points off 2013 gross domestic product, “and possibly higher, depending on whether the fiscal multiplier is positive.” This sentiment is reflected by the IMF, which last Thursday reported that the sequester would likely cut US growth rates in 2013 by at least 0.5 percent if the cuts are fully implemented.

According to the Office of Management and Budget, “should sequestration remain in place for an extended period of time, hundreds of thousands of families will lose critical education and wellness services through Head Start and nutrition assistance programs. The Department of Defense will face deep cuts that will reduce readiness of non-deployed units, delay needed investments in equipment and facilities, and cut services for military families. Federal agencies will likely need to furlough hundreds of thousands of employees and reduce essential services such a food inspections, air travel safety, prison security, border patrols, and other mission-critical activities.”

However, the consequences may not be as dire as first predicted and it could take a while before the cuts begin to negatively manifest themselves. For example, most of the pain will only gradually roll over Americans, CNN Money explains. Starting today, agencies will limit their contracts and grant awards, but furloughs won’t take effect until March 26 or later—the IRS, for instance, has said it won’t furlough anyone until after the April 15 tax filing deadline, the Washington Post reports. This means that the US may not immediately feel the effects of sequestration but rather, the sequester cuts are more akin to a slow burn rather than a searing heat.

While there are doubts about the extent to which sequestration will harm the economy and the American people at large, one thing is certain, the debate over the “sequester” has highlighted the scale of divisions in Congress and suggests that hopes of a grand bargain are becoming slimmer and slimmer. Furthermore, with the next mini-cliff scheduled to hit on March 27, it is hard to expect anything other than future Congressional tumult and further economic uncertainty.

Posted by: Matthew Goldberg

Sources: Associated Press, Office of Management and Budget, CNBC, Business Insider

Photo Credit: Cutting your Spending courtesy of flickr user Tax Credits