Are Socially Equitable Nations Wealthier?

George Floyd’s May 25, 2020 death at the hands of Minneapolis Police Officer Derek Chauvin sparked a wave of national protests about the United States government’s treatment of racial minorities. While these discussions typically focused on policing, many activists used the heightened awareness of racial disparities to push for greater opportunities for black Americans. Guided by a concept called ‘social equity’, which holds that governments should “take into account systemic inequalities” between groups to “ensure everyone in a community has access to the same opportunities and outcomes,” governments and corporations began creating new policies to improve outcomes for black Americans. This often took the form of Diversity, Equity, and Inclusion (DEI) initiatives that sought to educate Americans about inequalities and encourage policy that redistributes resources and decision-making authority to historically disadvantaged groups.

However, DEI initiatives and other reforms meant to bolster opportunities for racial, ethnic, and gender minorities have faced pushback. These critics contend that policy efforts to correct for systemic inequalities may run counter to a meritocratic or non-discriminatory approach. Indeed, Professors Anna Krylov and Jerry Coyne co-wrote a Wall Street Journal editorial piece bemoaning that academia’s once impartial pursuit of merit “once anodyne and unobjectionable… is now contentious and outré, even in the hard sciences.” While efforts to correct for systemic discrimination may be noble, these critics argue that they deprioritize merit in hiring, which could negatively affect their academic disciplines.

But how might these arguments apply in a private sector context? Proponents of social equity initiatives claim that inviting more diverse perspectives into boardrooms allows for more holistic corporate policy that ultimately improves companies’ bottom lines. An analysis of venture capital firms’ success rates found that racially homogenous firm’s investment success was 26.4% lower than racially diverse firms’. However, if programs designed to promote social equity run counter to meritocracy, then one might expect economies that value social equity to have less qualified leaders, which could negatively impact economic success. But which of these competing perspectives on social equity and economic success is true? In this case study you will analyze data from the DemCap Analytics tool to discern whether socially equitable economies are more wealthy. 

Social equity can be a nebulous term, but it is easiest to understand when contrasted with equality. In an equal system, all individuals are held to the same standard and receive identical treatment. However, there are a number of persistent systemic social and economic barriers to racial minorities and women’s achievement that make strict equality in things like hiring decisions and government resource provision insufficient. Even if those barriers to success are removed, the lasting legacy of that inequality will disadvantage adults who, for example, graduated from underfunded schools or lost previous opportunities because they are a minority. This leads to huge outcome disparities across race and gender that cannot be explained by inequality of opportunity alone. Public administration scholars echo this concern, with George Fredrickson noting that while public policy administration was ostensibly race-blind, in practice it was “evident that the results of governmental policy and the work of public administrators implementing those policies were much better for some citizens than for others.”

If we acknowledge legal equality can still result in de facto inequality, then what can policymakers and companies do to ensure everyone gets a fair opportunity to succeed irrespective of their race or gender? Socially equitable societies ensure that differences in social outcomes are “not the result of differences in wealth, income, power or possessions” through active interventions to redirect wealth and opportunities to historically underserved populations. Rather than strict equality, equitable societies consider how various factors might lead to unfair outcomes for minority groups and extend them opportunities to level the playing field. 

But what does this look like practically? One major aspect of a socially equitable nation is descriptive representation. Jane Mansbridge defines descriptive representation as a system in which members of minority groups are “represented by individuals who in their own backgrounds mirror the typical experiences of that group.” Essentially, elected officials, bureaucrats, and business leaders in consequential decision-making positions share some demographic characteristic with those they represent that allows them to more effectively advocate for that community’s interests. This can be the representative’s race, gender, sexuality, or class among many other characteristics. Affirmative action programs that give preferential treatment to qualified racial minority applicants are a blunt tool to promote this kind of representation and social equity more generally. 

Sometimes programs promoting social equity are more narrowly tailored than this. For example, after California legalized the sale of marijuana, its legislators promised “equitable ownership and employment opportunities” in the new industry to bolster the economic health of “communities negatively impacted by the War on Drugs.” This not only meant that entrepreneurs from communities negatively impacted by past marijuana laws would receive preferential licensing when opening a cannabis business, but also that tax revenue from marijuana sales would be redirected to local nonprofits studying the health implications of state and federal drug policy. While the aforementioned policy interventions are imperfect, they represent ongoing efforts by political and regulatory leaders to use a social equity framework to extend new opportunities to communities negatively affected by past legislation.

Having established what social equity is and what it entails, how does it affect economic growth? Does a more inclusive economy that elevates minority voices actually perform better?

Most available economic data suggests that social equity across race and gender helps generate wealth. The Federal Reserve Bank of St. Louis analyzed data on education and employment across races, and found that if other races’ employment and education statistics were brought up to parity with white Americans’, then the United States’ GDP would grow by $25.6 trillion over a thirty year period. Additionally, A 2015 study commissioned by the French government found that the French economy would grow by 150 billion Euros over the course of 20 years by “increasing access to skilled jobs and the overall employment rate for women and minorities.” Both of these studies suggest that national wealth could be significantly increased by extending new opportunities to racial and gender minorities.

At a more micro-level of individual firms, a 2020 report by Mckinsey & Company “showed that companies in the top 25% for racial/ethnic and gender diversity were respectively 36% and 25% more likely to have superior financial returns.” So at both a national policy level and within individual companies and firms, social equity seems to generate wealth. But now it is your turn to interrogate the data. Answer the questions below using data from the DemCap Analytics tool to see whether you find a relationship between social equity and national wealth.