How inclusive societies boost economic growth

We have learned much over the past several decades about the connection between gender inequality and economic growth, particularly when we talk about inequalities in education and employment. Inequalities in education, for instance, artificially reduce the pool of talent which societies can draw from; by excluding qualified girls from the educational stream and promoting less qualified boys, the average amount of human capital in a country will be reduced and this will have an adverse impact on economic performance. We also know that the promotion of female education leads to lower births per women, not only because educated women will have greater knowledge about family planning but also because education creates greater opportunities for women that may be more attractive than childbearing.

Lower fertility levels help reduce child mortality and expand the range of educational opportunities available to the next generation. All of these factors combine to boost economic growth. Indeed, the effects of lower fertility levels associated with improved female education have long-lasting effects and deliver a “demographic dividend” a couple of decades later. With reduced fertility levels the working-age population will grow more rapidly than the overall population and this will boost per capita economic growth.

Yet another powerful driver of economic growth associated with the narrowing of employment gender gaps has to do with the “bargaining power within families.” Not surprisingly, when women work and earn income as a result, they will be more empowered within the home. Beyond the direct personal benefits to her, the economics literature has identified a number of other favorable effects such as higher savings, more productive investments and better use and repayment of credit, all of which are beneficial for economic growth. Other studies have shown that with greater female power within the household there will be higher investments in the health and education of children, thereby planting the seeds for the accumulation of human capital in the next generation.

A further avenue of influence has to do with growing evidence that women workers are less prone to corruption and nepotism than men workers. The criminology literature, for instance, has long established that “the most consistent pattern with respect to gender is the extent to which male criminal participation in serious crimes at any age greatly exceeds that of females, regardless of the source of data, crime type, level of involvement or measure of participation.” [1] More recently, a survey of 6,500 companies carried out in the United Kingdom looking at the gender composition of company boards showed clear evidence that companies with greater female participation in boards were less likely to be hit by governance scandals involving bribery, fraud and other factors likely to depress business confidence.[2] So, boosting the employment of women is likely to be beneficial for economic growth through improvements in the quality of governance.

Of course, while governments have played a central role over the past century in the creation of a legal framework that has placed important limitations on women’s ability to contribute meaningfully to the economy or that have shaped in some adverse way her economic surroundings (see the Women, Business and the Law report for a detailed compendium across 143 countries of the ways in which this has been done), there are many other forms of discrimination embedded in the law, that go well beyond issues of gender.

Article 20 of the Constitution of Iran establishes that all citizens of Iran have to be “in conformity with Islamic criteria.” Hence, members of the Baha’i community, Iran’s largest religious minority, are denied access to schools and universities, barred from public sector employment, and face severe work restrictions in virtually every other sector of the economy. In Lebanon, groups such as Baha’is, Buddhists, and Hindus may own property and assemble for worship, but may not marry, divorce, or inherit property within the country. The Uganda Anti-Homosexuality Act of 2014 punishes “aggravated homosexuality” with life imprisonment and the “offence of homosexuality” with a prison sentence of up to 14 years.

There is clearly a role for government to create the enabling conditions for a sound economy and an equitable society that makes efficient use of the natural, economic and human resources available to it to meet the needs and ensure the well-being of everyone. Poverty is one indicator of government failings in this area. Despite the rapid growth experienced in several developing countries over the past few decades, more than 1 billion people still live in extreme poverty, and inequality is increasing around the world.

The World Bank has committed to achieving the twin goals of eliminating extreme poverty and boosting shared prosperity. These goals go hand in hand with equality of opportunity and the inclusive participation of all segments of society in the economic and social spheres. Poverty is often greatest in traditionally marginalized groups, and various forms of discrimination can greatly depress the prospects for its alleviation.

The most sustainable path towards ending extreme poverty and promoting shared prosperity is through creating an inclusive society, allowing everyone, including traditionally marginalized groups such as ethnic, religious, and other minorities, the same opportunity to participate in and benefit from the economy. Governments have a critical role in creating a foundation for equality of opportunity, both through dismantling laws, regulations and policies which actively discriminate against certain groups, and through adopting and promoting mechanisms enhancing the enforcement of anti-discrimination legislation.

Prosperity involves more than just increasing and distributing wealth. Human well-being includes social, cultural, ethical and spiritual dimensions. The diversity and additional perspectives contributed by presently marginalized groups can, when allowed full expression and participation, enrich the community and society and add to collective prosperity. Equality of opportunity not only prevents a waste of human resources and capacities, but also opens the potential to even higher levels of social and economic well-being.

This article was originally published on The World Bank’s Let’s Talk Development Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Augusto Lopez-Claros is the director of Global Indicators Group at the World Bank Group.

Image: People cross a street in Mong Kok district in Hong Kong. REUTERS/Bobby Yip.