In today’s America, a middle-class life will cost you, on average, 30% more than it would have 20 years ago. Relative to the change in middle-class income since 1980, housing costs have increased by approximately 100 percentage points; healthcare costs have grown by nearly 200 percentage points; and the price of education has soared by more than 600 percentage points.
With the largest wealth inequality gap among the 200 countries in Credit Suisse’s Global Wealth Report, the US is racing towards an economic cliff. Or perhaps, in a once-in-a-generation turn of events, COVID-19 has already pushed us off it.
The good news is that we have a parachute to prevent us from a crashing economic blow: women. Women were the driving force behind the middle-class incomes of generations past, and they will drive the revival of our post-COVID, post-election middle class. A thorough embrace of stakeholder capitalism under President-elect Joe Biden will only serve to unleash women’s full potential.
A middle class in need of restoration
The deterioration of America’s once-thriving middle class is no secret. Had economic growth been shared over the past four decades to the extent it was between the end of World War Two until the early 1970s (i.e. until the spread of Milton Friedman’s shareholder doctrine), someone with a $50,000 annual salary today would be earning nearly double that amount: between $92,000 to $102,000 depending on inflation calculation.
To be certain, the middle class isn’t the only class in a state of decay. The entire bottom 90% of Americans would be earning an extra $2.5 trillion each year if the economic prosperity of the past 45 years had been divided equitably.
Women hold the keys to our economic engine
The small gains that middle-class households have managed to make during this period – averaging about 1.3% in income growth per year – are almost entirely attributable to women. In fact, had women’s contribution to household income stayed flat, the average middle-class income would have only risen by $1,082 between 1979 and 2018. Fortunately, that wasn’t the case. More than 90% of total income gain for middle-class families during this time period came from women, leading their household incomes to rise by $12,139 instead of a meagre $1,082 (from $57,420 in 1979 to $69,559 in 2018).
It’s not only middle-class families that have benefited from this growth, albeit modest. Since 1970, the increasing number of women in the paid labour force has added $2 trillion to the broader US economy. And there’s another $789 billion on the table if we close the intersectional gender gap in labour force participation. Or, we could go a step further and close all intersectional gender equity gaps (of which labour force participation is a subset) to expand our economy by a total of $2 trillion. The choice is ours.
Stakeholder capitalism: the foundation of inclusive prosperity
If we choose the route of intersectional gender equity – and thus unlock its subsequent economic gains, then some things need to change. We need to start paying women and people of colour equitably. We need to start valuing them as equal partners in the C-suite. We need to remove bias from performance reviews and distribute opportunities for advancement equitably. We need to start offering promotions based on objective criteria rather than informal relationships. In other words, we need stakeholder capitalism.
Beyond the press release: how to achieve stakeholder capitalism
The private sector is worth $19 trillion, surpassing the size of government by a multiple of four and private philanthropy by a multiple of 40. That’s why, as a founder and CEO myself, I am first calling on other business leaders to mobilize concrete action for equity. As consumers, employees, and investors have called out, committing to stakeholder capitalism’s “terms of service” is not the same as fulfilling them.
Here are three recommendations for CEOs and business leaders to implement stakeholder capitalism and unleash the full economic potential of women.
1. Overhaul time horizons to prioritize long-term value creation
Contrary to popular belief, a singular focus on maximizing shareholder value does not lead to maximized returns in the long run. Our economy is more complex than that. While quarterly earnings reports matter, we must learn to shift our focus away from short-term gains and towards long-term value creation. This means accepting fiscal and regulatory measures that support or protect stakeholders.
One example is expanding investments in childcare infrastructure. Such an investment would not only help our economy recuperate the $57 billion lost annually in earnings, productivity, and revenue due to lack of adequate childcare, it would also boost labour force participation rates among the US’s most educated cohort – women. And that brings us closer to unlocking the $789 billion opportunity of intersectional gender equity in the labour markets.
Other examples include endorsing pay equity legislation (which would help our economy tap into the $512 billion opportunity of achieving pay equity across all genders and races/ethnicities) and overhauling the minimum wage to keep our workers out of poverty.
Rejecting the government’s role in value creation would run contrary to corporate inception. After all, what is a corporation if not a government-established concept of limited liability?
2. Track, measure, and share diversity reports annually – even if federal, state, or local law doesn’t require it
Measure what matters: if we say we care about diversity, equity, and inclusion (DEI) for all our stakeholders, then we need to measure it. Despite 78% of CEOs listing gender equity as a top priority, only 22% of employees regularly see data on it measured and shared. It’s time we stop fearing DEI data and start seeing it for what it truly is: a roadmap to guide us forward. With the right data, we’ll finally be able to know what works, and what doesn’t, as we strive toward stakeholder capitalism. Public policy must play a role in setting transparency standards around diversity and pay equity reporting, but we shouldn’t wait for the government to hold us accountable for positive change.
3. Urge policymakers to practice gender-based budgeting
Large businesses currently outspend public interest groups (including labour) on lobbying efforts by a ratio of 34 to 1. Instead of lobbying for lax regulation and weak taxation, corporations can use their experience in Washington D.C. to urge policymakers to endorse gender-based budgeting. Gender-based budgeting, while not a new idea, is one of the sharpest public policy tools we have to revive our economy for the benefit of all. Unfortunately, however, we aren’t using it. Of the $2.3 trillion deployed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act – the largest single economic relief package in US history, none of it applied the gender lens. This resulted in an inequitable, inefficient allocation of government resources. As business leaders, we should be the first to locate and eliminate inefficiencies.
Change starts now
Since its birth five decades ago, the roots of Milton Friedman’s shareholder premise have sucked the lifeblood (i.e. the middle class) out of the economy. Now, as COVID-19 exposes the myriad inequities that were festering beneath the surface, we are beginning to see shareholder capitalism as the weed that it is. It’s time to transform stakeholder capitalism from a press release to a practice. In doing so, we will break down the barriers that prevent 50% of our population – women – from fully participating in the economy. Middle-class revival awaits.
This article was originally published in the World Economic Forum.