2018 reflections: inequalities, populism, climate change

2018 stood out, for me, as a year where the world made big leaps in understanding development problems, and progress in science more broadly; while on many fronts we lost collective ability or commitment to address them. This seems the case particularly with respect to climate change and inequality, the two main development challenges for the coming year and decade. The following is a reflection of my end-of-year reading, of both the negatives and positives.

The publication on October 8th of the report of the UN Intergovernmental Panel on Climate Change was one of the most significant event of the year. It warned persuasively that the time to act to address climate change is running out fast, faster than expected, and far-reaching and unprecedented measures are essential. Global CO2 emissions were on the rise again in 2018.

The UN’s 24th annual conference on climate change in Poland in December illustrated the ambivalence in resolve to address the world’s biggest challenge. Administrations of the US, Saudi Arabia, Kuwait, and Russia blocked a collective endorsement of the IPCC report – and US representatives even expressed praise for fossil fuels, arguing “no country should have to sacrifice their economic prosperity or energy security in pursuit of environmental sustainability”.

While there is a great deal of ambivalence in the commitment to address climate change, there are many positive signs, and knowledge that growth and sustainability do not need to form trade-offs. Most countries continue to support the Paris Accord. Cities around the world have committed to deliver on the Paris Agreement objective to hold the increase in the global average temperature to well below 2 degrees Celsius, through reducing transportation emissions, building energy efficiency, green energy, and changes in consumption patterns.  And private sector CEOs have committed themselves to the Paris objectives, through for example an internal price on carbon, reducing energy use and switching to renewables.

News on inequality in 2018 was equally troubling. A report by the British House of Commons library showed that the in the ten years since the financial crisis of 2008, the income of the global 1% elite had increased by 6% per year, twice as fast as that of the remaining 99%. And it predicted that by current trends in 2030 the global 1% will hold almost two-thirds of all the world’s wealth.

The causes of these changes in inequality, and how economic and political inequalities intertwine continue to be debated. Globalisation is presented as the main cause of many populist leaders. Technological changes are an equally likely cause. In 2018 the role of owners of digital platforms and social media came under increased scrutiny. The impact of new technologies on employment, and potential for economic convergence remains highly uncertain.

This is not to say that not much progress was being made. Economic growth remains robust despite growing risks. Global poverty reduction continues, and measured by the Gini coefficient global inequality has actually been decreasing.

But the pace is very uneven. Global poverty is increasingly concentrated in Africa; Nigeria may soon have more poor people than India. Poverty is also increasingly concentrated in places that suffer from fragility, conflict, and violence, and social services including health systems continue to fail, resulting also in emergencies such as Ebola.

Although the number of refugees was lower in 2018 than in the previous years, there are still over 65 million refugees globally. Two-thirds of the refugees are displaced in their own countries, and – despite impressions created by some media – over 80% of refugees are hosted by countries in the Global South.

One of the more promising events of 2018 was the agreement, by 180 UN members opposed only by the US and Hungary, of the Global Compact on Refugees. This promises progress for refugee-hosting countries, the support of refugees’ self-reliance, and on access to ‘third countries’ through formal channels, and safe repatriation.

Gender equality continued to be high on the agenda of many thought leaders and activists. We witnessed significant progress, and widespread mobilisation for example at the end of 2018 in Kerala, India, to support access by women to the Sabarimala Temple, one of Hinduism’s holiest sites. But the road to gender equality is a long one: the World Economic Forum’s 2018 Global Gender Gap Report highlighted that while gender gaps are closing it will take – for example – 60 years for gender gaps to close in Western Europe and 170 years in East Asia. New inequalities for example related new technologies are emerging, and labour market inequalities and segmentation continue to hold women back.

Political developments hampered the kind of progress needed to address climate change and high and rising inequalities. While global levels of democracy are still close to an all-time high, there have been disquieting trends in countries like Brazil, India, Poland, Russia, Turkey, and the United States – and hoped for democratic progress in for example China, Myanmar and Saudi Arabia has not materialised.

An inward-looking populism thrives on narrowly-defined socio-political identities, tending to restrict rights of minorities and migrants, and reduce the powers of redistributive policies. The populism is increasingly global, contributing to significant changes in political and economic alliances, as witnessed in global fora like the G20 (‘G19’), concerns about essential responses to growing economic risks, trade agreements, the UN etc.

Even a very selective narrative of recent trends as the above does not allow for simple priorities for a development research agenda in 2019 and beyond; what it does tell me though is that the challenges of political reversals, and growing risks of inequalities and climate change need to be addressed jointly.

 

 

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Some of my best friends are economists

With my colleagues at the IDRC Employment and Growth program we had a very interesting discussion about papers analysing factors determining labor market entry. Now the discussion happened over lunch, where discussions tend to be rather boisterous, and let me declare that my comments on ‘risk of marriage’ may have sounded somewhat chauvinistic. Interestingly, in this group combining Latinos, Asian, etc, married, unmarried, and divorced – we all seemed to agree about the notion of risk in that case – but we disagreed on what this means, and this split the group in economists and non-economists (but let me reassure our managers and funders we all went back to our desks and work after ….) My claim that marriage doesn’t do anything was met with complete dismissal, by some of my best friends who are economists.

Our substantive difference, I think, revolved around the idea of causation. Now let me quickly say that I do not (just) mean correlation is not causation. Development economist, since the great sociologist Durkheim have found increasingly sophisticated ways of understanding not just that pattern of events coincide, but also which of the two leads to the other. I ask my economist friends economists to give me a good list of improved methods, but I imagine this would include lagged variables (education impacts economic growth decades later), instrumental variables (do not rely on Wikipedia but this seems to makes sense), and of course Randomised Control Trials.

Let’s say that by the gold standard we can establish that marriage causes a change in women s access to labour markets – hopefully not a contentious claim. As a sociologist I still argue that the idea of causations is limiting. This causation is still within the analysis, the model, the trial – which is still, of course, an abstraction of real life. Marriage itself does not cause anything (I might be exaggerating slightly but bear with me). It is the actions that people take (after marriage) that cause things: husband and in-laws holding women back from going to work, women deciding to quit their jobs, employers trying to get rid of women or trying to create an inclusive work environment that allows for different needs, etc. And it is perceptions that inform those actions: the norms around whether women should work, what this would mean for companies profits, women’s aspirations and reactions in the environment, how power is divided etc.

I think the above is not insignificant. I think I am starting to see the importance of Naila Kabeer s warning not to turn gender into a dummy variable. The distinction seems equally relevant for recent debates around inequality and voting behavior and the populist backlash as well. It is not the variable in the analysis that causes anything, it is actions and behaviors that do that, and this in turn is informed by perceptions and the constraints in which they live, as another great sociologist Anthony Giddens has taught. The above also is not to dismiss the importance of the causal analysis mentioned here, but to say that it is not enough, may be insufficient to understand human behaviour. Perhaps an obvious point, but better inter-disciplinary seems a priority, still.

And finally, I also think this is relevant for policy, and to consider how evidence shapes policy and action. Even gold standard causal analysis does not tell us enough about what policies works, unless it understands how the causal factors shape perceptions and actions – in that sense it is still correlation, and hence as crucial. The evidence also needs to be used directly by practitioners, as I think Pasi Sahlberg argues with respect to education policy and evidence. It seems on gender equality, understanding what causes what and how is particularly important.

 

PS: I would love to hear if you are struggling with the same questions, and whether you think they matter for policy. Also, if you are interested to work in this research field, and are not discouraged by my image of our team lunches, please check outhttp://bit.ly/2kxvugq

China a responsible global leader? Role of its aid program

In an interview in New China, the founder of the World Economic Forum (WEF) Klaus Schwab stressed his expectations China is becoming a “responsible and responsive” global leader. This is happening in the midst of the enormous uncertainties created by the US elections, which makes Brexit already seem as a small blip in how global politics are reshaping.

Demonstrating China is a responsible global player has been a key feature of China’s foreign policy and diplomacy, as it has been integrating in the global economy. Its aid program, as we argue in a recent draft paper, has played a key role in this.

Recent announcement on its aid program highlighted how China continues to see its global role growing. At the 6th Forum on China-Africa Cooperation (FOCAC), President Xi Jinping pledged US$60 billion in aid to Africa, tripling previous commitments. This growth happened at a time when China’s growth model (and hence its external economic relations) was shifting, and the much-maligned search for natural resources is becoming less central (one’s best source for the debate on China in Africa is work by Deborah Brautigam and colleagues).

China’s global diplomacy has transformed radically (with much continuity in official rhetoric), and its aid program moved largely in tandem. From the early role in the post-War context, its role in the Non-Aligned Movement, and its role in the UN (which it rejoined in 1971), as China started to open up its global economy, its aid program was increasingly aligned with its economic interests – also increasingly diverse and often making it a ‘partner of choice’. This aligmnet has made it subject to much criticism, including from the aid advocates that that have – rightly and successfully promoted – untied aid.

However, we wonder if tis represents the new normal – even though some might argue it’s not that new at all. Recent empirical research is indicating that the way China’s aid is aligned with its national interest is not as exceptional as some critiques suggest. Motivations for China to be part of the UN, similarly, are not substantively different from those of other global players. And finally, and perhaps most importantly at this juncture, global politics and the major advocates of the international development agenda have been changing course, and one fears with increasing speed.

China’s international principles still include this of ‘Peaceful Coexistence’ – I for one agree that venues like the WEF could do worse than trying to foster these.

Inclusion that promotes growth?

The notion of inclusive growth has diverse definitions. A key priority is to support the economic opportunities of marginalised groups, including those in the informal sector – not just redistributing benefits of growth, but providing those groups with opportunities and more equal playing fields. Here are some examples of how growth and inclusion can go hand-in-hand, from our program at IDRC supports research that promotes economic growth and inclusion simultaneously.

Our GrOW program supports evidence that can inform social and economic policies to improve poor women’s lives, while promoting economic growth. One of the key barriers for women is their ‘double burden’: they spend far more time doing unpaid work caring for their families than men. GrOW-supported research is testing the provision of daycare in low-income countries. In Kenya, the Nairobi City Council and  IDRC-supported researchers aim to improve the quality of childcare in the city’s low income settlement. This is providing new evidence on the economic returns of expanding affordable and quality child care options for poor women, and on sustainable financing models for low income countries.

While one-third of all businesses are owned by women, they face many disadvantages: in access to training, finance, and markets. WEConnect helps women-owned businesses connect to large companies committed to buying from women owned and minority businesses. IDRC support helped build a database for women entrepreneurs to register (which also makes it possible to understand characteristics of growth-oriented firms). In India 600 Indian women-owned businesses registered in the database, and 60 became certified to supply large companies: this helped generate additional revenue of 170 million CAD annually, and employ more than 4,600 people across India. We are expanding this work to expand connections to markets and value chains, through supporting work on inclusive distribution, promoting social enterprise like B Corps, and promoting better jobs in value chains in garment, electronics, and agricultural in South-east Asia.

In Latin America, cash transfer programs have reduced poverty, helped reduce inequalities, and provided incentives to families to educate children and bring them to health clinics. Our program supports organisations that help beneficiaries get access to financial services, so that they can use the cash grants to save and invest, and thus improve the small-scale activities that typically engage in. Proyecto Capital provides marginalised groups with access to saving accounts financial training to help them use their savings to enhance their small businesses. The research supported by IDRC helps to show what impact this has, and what can be done to improve the programs. Getting a savings account and financial education can improve the small businesses, for example invest in animals by as much as 10 per cent (at very low costs), and thus increase incomes and well-being.

Around the world, job prospects are scarce. This is a particularly the case for young people, and Africa is most affected by this as it has the youngest population. In many developing countries, young people are creating their own jobs to improve their economic prospects. Entrepreneurship is part of the solution.  Policies are needed to support young entrepreneurs. IDRC support is helping to provide governments with evidence on critical questions: Who are the young entrepreneurs? What are their challenges? Which ones have the potential to grow, and what are reasons behind failures? How can programs and policies support their aspirations? First-time data in more than 15 countries in Africa, Asia and Latin America. Policy makers, like in Vietnam, can now use this data to boost small businesses and support youth ventures.

Supporting Women Owned Businesses – 6 lessons I learned

 

Today’s discussion at The Urban Institute on what works in supporting women owned businesses provided a number of clear lessons, directions and priorities. It told us a number of things that we need to learn more about. Six lessons I have learned.

There is much knowledge about what works in providing finance, training, and mentoring female entrepreneurs. If well designed, and addressing specific gender constraints, they can help women’s skills and capabilities. But the impact of single-sector interventions is small: women face many different constraints, and integrated approaches (thus) are more likely to be effective – but also more costly per person. Relatively little is known about how businesses grow in a sustainable manner.

Moreover, women entrepreneurs don’t operate in a vacuum, and a wider set of stakeholders need to be brought into this conversation about women’s economic empowerment. There are many legal constraints that constrain women’s empowerment, directly or indirectly influencing their opportunities to start or grow businesses. Trade in principle provides opportunities for women’s enterprises, but in practice women are disadvantaged. Equally, public procurement provides enormous opportunities for businesses, but the way procurement is implemented means women and small businesses tend to be excluded from these opportunities.

The growing interest in the private sector to promote inclusion provides new opportunities, and knowledge on these is only now emerging. A growing number of companies have committed themselves to purchasing from women-owned businesses; lessons are now emerging on the successes and failures and complications in doing this, and the need for helping women entrepreneurs preparing for this.

There is a critical question around what works for what type (including size) of enterprises. On one end of the spectrum, and representing a very large proportion of women workers in the global South, own-account workers face extreme vulnerabilities, and are excluded from most of the opportunities that markets and governments provide (also, broader labor markets trends are key particularly for the survival type of activities). There are very important – but few – examples of women’s organizations and market facilitators that may help to bridge this gap.

Almost everybody highlighted the need for more and better data, and commended the recent commitments by the Gates Foundation and others to deepen investments. Data needs are diverse though. To make women’s work visible, countries need to invest in labor force surveys. For practitioners looking to make market connections to, or facilitate public procurement for smaller enterprises, better enterprise data is needed. Data like GEM’s on female entrepreneurs is growing rapidly, but still available, for example, for only a small proportion of African countries. Existing data, particularly in the field of business, need to be interrogated on deeply ingrained gender biases.

And finally, there was a strong emphasis on not isolating the question of female entrepreneurship from broader questions of gender inequality. Many of the constraints for entrepreneurship are broader gender constraints: access to collaterals, gender based violence, lack of safe transport etc. Entrepreneurship choices (where these exist), and even choices between a wage job and starting small businesses are directly informed by women responsibilities for households and care.

Women-owned businesses: what works promoting women’s economic empowerment?

The GrOW program at IDRC (with WEConnect International and the Urban Institute).is assisting the UN High-Level Panel on Women’s Economic Empowerment, to synthesize what we know about female entrepreneurship: the trends, the challenges and ‘bundled constraints’ that continue to hamper women, and what works in promoting women-owned businesses. The following presents some early ideas, hoping for reactions and inputs.

Trends and gaps

Globally, according to IFC estimates, one-in-three formally registered businesses are owned by women. SMEs account for 80 per cent of jobs world-wide, and women tend to be over-represented in, and own smaller and often informal enterprises. Rates of female entrepreneurship have been increasing, and gender gaps decreasing, including since the financial crisis.

However, 50 per cent of women’s productive potential is underused, compared to 22 per cent of men’s (ILO estimate). The credit gap for formal women-owned SMEs across all regions is 30 percent of the estimated total credit gap for SMEs, roughly $287 billion (IFC estimate).

Regional variations in levels of female entrepreneurship are very large, and this variation seems similar to variations found in female labor force participation. There is a tendency to explain these regional variations with reference to socio-cultural factors. A better understanding of these social-cultural constraints, and how these interlink with constraints to access to factors of production, in different stages of enterprise development seems a priority.

Women entrepreneurs lack access to the resources needed to exploit their economic potential. Disparities in access can exist in all sectors and for all types of enterprises. Women entrepreneurs tend to crowd in specific sectors, often in markets that appear saturated and offer low-profit potential. 70 percent of women-owned small- and medium-sized enterprises in developing countries are un- or underserved by financial institutions.

Growth-potential of women-owned businesses

Very few small enterprises, men- or women-owned, become big enterprises, according to Chris Woodruff. There is limited understanding of which businesses grow, or which informal businesses become formal. Among formal businesses, there appear to be no large differences between women- and men-owned enterprises in terms of number of employees. But women-owned enterprises have on average lower sales and assets. Female entrepreneurs tend to be over-represented in the smallest and informal enterprises, where the gaps tend to be larger.

Gender gaps tend to exist across production factors: women face ‘bundled constraints’. This has important implications for the measurement of women’s economic empowerment, and for support to women-owned businesses. Expansion of entrepreneurial activity for women – and potentials for success of support programs – cannot be seen in isolation of the responsibilities they have in the care economy.

Solutions

Evidence on what works in supporting women-owned businesses is not amply available. This is not surprising as data is scare, and approaches and metrics vary. Data on costs is generally not available. Support to women-owned businesses is partly provided through public policies, partly through private and foundation initiatives.

Success in improving women’s business performance and growth has been limited, though training for larger enterprises may be more successful.

  • Training leads to positive impacts in business behavior, but longer-term and growth impacts are not easily found.
  • While addressing constraints to financing is a key priority, the evidence shows that finance on its own may not have a large impact on most women-owned businesses.
  • Access to mobile phones and other technologies, similarly, is a necessary but not sufficient condition; gender-specific applications can be critical.
  • Women need the legal protection business registration offers, but female entrepreneurs may resist registration to avoid taxation or because they fear harassment by government officials.

Many studies point at the need for multi-pronged approaches to support female entrepreneurs, and given evidence on multiple constraints this appears logical. Evidence on what works in multi-pronged approaches is scarce however.

There is emphasis on the need to combine micro-interventions like training, mentoring, etc, with the need to address the broader eco-system and macro-level constraints:

  • World Bank research indicates correlations between legal constraints and women’s economic roles.
  • Different trade regimes have different impacts on women, and complementary measures are deemed necessary to enhance the benefits of trade liberalisation.
  • As public procurement forms significant proportions of country’s GDP, and initiatives exist to help women have greater access to this. Politically, targeted interventions in this area may not always be popular, however.

There is growing evidence that building market connections are a critical path for promoting women-owned businesses. This is partly driven by approaches by businesses, to promote supplier diversity and inclusion: similar to increasing the number of women in senior positions, this is thought to be good for business as well as gender equality. Value chain approaches, including for women, and in agriculture in particular, have shown positive results. Impact investment provides new avenue to promote women-owned businesses, but evidence on what works is limited.

Demise of the Aid Industry?

The structure of international development, or the aid industry, has remained remarkably stable since its post-War origins. The 1980s with its Washington Consensus strengthened the structure, by enhancing the role of International Financial Institutions. The critique changed some of the practices, but not the institutional set up. The late 1990s debt relief movement, and following Poverty Reduction Strategy Papers and Millennium/Sustainable Development Goals further embedded aid as a key part of international relations. The number of institutions have grown, but to a great extent they have been moulded into the existing architecture.

In 1990, aid – the grants and concessional loans Northern governments provide to Southern partners for development purposes – was really important. Remittances were already becoming a big part of total financial flows from North to South, but aid formed about half of the total recorded flow (and as remittances do not necessarily have the same ‘development’ focus, the qualitative importance and visibility of aid were larger).

But over the last two decades, this financing picture has changed dramatically. Private philanthropies now form a big and often integral part of aid efforts. For example, the Gates Foundation is globally the fourth largest funder in the health sector, and business coalitions articulate intentions to contribute to development goals. These have not only brought the additional money, as have new bilateral donors like China and Brazil, but also new ideas and motivations to a sector many thought was plagued by aid fatigue.

But there are even bigger changes to the field of aid. In 1990, aid was the single largest part of international flows. By 2007 it was perhaps only 10 per cent of that. Domestic finance in developing countries also has expanded, thus rapidly making aid less important. Estimates of amounts of impact investment are uncertain, but have become considerable and are continuing to grow, and receive growing endorsement by world leaders, including recently the Pope. Development Finance Institutions (DFIs), according to one estimate, forms about half the amount of global ODA, having grown from about $10 billion to over $60 billion in ten years.

Alongside this the emphasis on untying aid has changed. While during the 2000s the amount of aid that was provided untied increased significantly, political changes and the rise of new donors have led to a growing emphasis on ensuring donor countries’ aid also supports the donor countries’ economies and business.

The growth of private finance, and the growing inter-linkage between aid and business, call for a better understanding – amongst those in the old aid industry – of what these private sources of finance imply for development, and how public-private partnerships can be made to work. It also means we need to rethink what in this new context aid should focus on.