Finance, Gender, and the Ethics of Care:

ideas for human finance

Irene van Staveren, Institute of Social Studies, member of SAC FESSUD,

Presentation at Annual FESSUD meeting, 17-20 October 2013.

Outline:

I. Gender Trends in Developing Countries

during Financial Crises

II. The Lehman Sisters Hypothesis

III. Caring Finance: Ethics for Financial Reform

I. Gender Trends in Developing Countries

during Financial Crises

Methodology: comparative analysis, period 1996-2005

• Crisis countries: 1997: Indonesia, Korea, Malaysia, Philippines and Thailand 1999: Brazil 2001: Argentina 2002: Turkey

• Non-crisis countries: India, Japan, Mongolia, Pakistan, Vietnam, Chile,

Mexico, Egypt

Change in Maternal Mortality Rate, 1996-2005

-180

-160

-140

-120

-100

-80

-60

-40

-20

0

20

Argentina Brazil Indonesia Korea, Rep.of

Malaysia Philippines Thailand Turkey Average

Crisis countries

Average

Change in Maternal Mortality Rate, 1996-2005

-200

-150

-100

-50

0

50

Chile Egypt India Japan Mexico Mongolia Pakistan Vietnam Average

Non-crisis countries

Average

Average decline: 33 per 100,000 live births

Average decline: 57 per 100,000 live births

Change in Female/Male Ratio Primary School Enrolment, 1996-2005

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

Argentina Brazil Indonesia Korea,Rep. of

Malaysia Philippines Thailand Turkey Average Crisis countries

Average

Change in Female/Male Ratio Primary School Enrolment, 1996-2005

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

Chile Egypt India Japan Mexico Mongolia Pakistan Vietnam Average

Non-crisis countries

Average

Average decrease: 0.4%

Average increase: 9.7%

Change in Female/Male Ratio Secondary School Enrolment, 1996-2005

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Argentina Brazil Indonesia Korea, Rep. of Malaysia Philippines Thailand Turkey Average

Crisis countries

Average

Change in Female/Male Secondary School Enrolment, 1996-2005

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

Chile Egypt India J apan Mexico Mongolia Pakistan Vietnam AverageNon-crisis countries

Average

Average increase: 4.4%

Average increase: 10.1%

Change in Female/Male Completion rate Primary School, 1996-2005

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

Argentina Brazil Indonesia Korea, Rep. of Malaysia Philippines Thailand Turkey Average

Crisis countries

Average

Change in Female/Male Completion rate Primary School, 1996-2005

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Chile Egypt India J apan Mexico Mongolia Pakistan Vietnam Average

Non-crisis countries

Average

Average decrease: 0.95%

Average increase: 3.76%

Change in the Gender-related Development Index, 1996-2005

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

Argentina Brazil Indonesia Korea, Rep. of Malaysia Philippines Thailand Turkey Average

Crisis countries

Average

Change ni the Gender-related Development Index, 1996-2005

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

Chile Egypt India J apan Mexico Mongolia Pakistan Vietnam Average

Non-crisis countries

Average

Average increase: 5%

Average increase: 11%

Conclusion part I: gender & crises

• Widening gap for women’s health indicator (maternal mortality rate) for crisis countries

• Widening gap for girls’ relative school enrolment and completion rate for crisis countries

=> financial crises can have disproportionate negative effects on several gender indicators: widening gaps

II. The Lehman Sisters Hypothesis

“If women had run the financial sector, we would not have found ourselves in this

crisis”

Survey among Dutch financial professionals

• N = 111

• 67% women, 33% men

• December 2010-January 2011

• LinkedIn snowball method through a group of women financial professionals

• Not representative but exploratory

  21-30

years

31-40

years

41-50

years

51-60

years

61-+

years

Total

Female 6.8 47.3 37.8 8.1 0 100

Male 2.7 43.2 27.0 24.3 2.7 100

Total 5.4 45.9 34.2 13.5 0.9 100

Age differences between men and women (%)

Pearson Chi Square test is statistically significant at the 10% level.

  Highschool Specialised

training

BA MA PhD Total

Female 2.7 9.5 13.5 63.5 10.8 100

Male 5.4 13.5 16.2 48.6 16.2 100

Total 3.6 10.8 14.4 58.6 12.6 100

Educational differences between men and women (%)

Pearson Chi Square test is not statistically significant

  < 5,000 5,000 –

10,000

10,000 –

15,000

15,000 –

20,000

20,000 > Total

Female 24.3 59.5 12.2 0.0 4.1 100

Male 21.6 37.8 21.6 5.4 13.5 100

Total 23.4 52.3 15.3 1.8 7.2 100

Income differences between men and women in euro per month (%)

Pearson Chi Square test is statistically significant at the 5% level

  No

bonus

< 10,000 10,000 –

100,000

100,000 –

500,000

Total

Female 32.4 36.5 29.7 1.4 100

Male 27.0 29.7 37.8 5.4 100

Total 30.6 34.2 32.4 2.7 100

Differences in bonus between men and women in euro in 2007 (%)

Pearson Chi Square test is not statistically significant

  No

bonus

< 10,000 10,000 –

100,000

100,000 –

500,000

Total

Female 48.6 31.1 18.9 1.4 100

Male 35.1 21.6 40.5 2.7 100

Total 44.1 27.9 26.1 1.8 100

Differences in bonus between men and women in euro in 2009 (%)

Pearson Chi Square test is statistically significant at the 10% level

  Yes No Total

Female 62.2 37.8 100

Male 70.3 29.7 100

Total 64.9 35.1 100

Self-perceived risk adjustment in volatile markets (%)

Pearson Chi Square test is not statistically significant.

0

10

20

30

40

50

60

70

80

Very low Low Neutral High Very high

Female 2007

Male 2007

Female 2009

Male 2009

Risk taking before and after the crisis (%)

Pearson Chi Square test is not statistically significant for 2007 but is statistically significant at the 10% level for 2009.

female male

female male

  Yes No Total

Female 97.3 2.7 100

Male 81.1 18.9 100

Total 91.9 8.1 100

Should more women be hired at the financial top when they have the same level of education and experience as men? (%)

Pearson Chi Square test is statistically significant at the 1% level

  Yes No Total

Female 86.5 13.5 100

Male 51.4 48.6 100

Total 74.8 25.2 100

Would more female leadership prevent a next crisis? (%)

Pearson Chi Square test is statistically significant at the 1% level

Conclusion part II: a gender paradox

Even though women’s financial attitudes seem more effective to prevent, or reduce the extent of a crisis, men do not as strongly as women support a higher share of equally qualified women at the top of the financial sector

• Why? Protection of male power? (status quo of gender

disbalance) Strong male believe in a linear positive relationship

between risk and ROI? (rational economic man) Strong male and female belief that women are less good

at calculus and that men are better leaders? (gender stereotyping skills)

III. Caring Finance: ethics for financial reform

“thick concepts” on the crisis:

• “hiding risky situations”• “excessive liberalization”• “extremely high bonuses”• “irresponsible loans”• “failing control”, “regulatory capture”• “perverse incentives”, “moral hazard”• “too rosy assessments”• “excessive liquidity related to

consumerism”

Conventional ethics & finance:

• Utilitarianism: concerned with autonomy and maximizing self-interest contributed to causing the crisis undermined the rules that were put in pace after

the previous crisis

• Deontology: concerned with the right cause of action for everyone was inadequate to prevent the crisis is insufficient to deal with the crisis and reform

Ethics of care

• Concerned with maintaining relationships and caring for each other’s needs

• Based on women’s moral experiences as care givers, but recognized as a wider human experience => theorized in feminist ethics

• The central value of care is responsibility: contextual (unlike a rule or right) relational (unlike autonomy or personal freedom to

pursue one’s self-interest)

Ethics of care & the crisis

• Responsibility in financial relationships: long-term perspective for sustaining these

relationships recognition of the importance of context rather

than universal rules

• Reducing risk from the recognition that: finance is vulnerable to a high degree of

uncertainty people may be affected by risk in many ways

Keynes (formulated by Skidelsky, 2009) on a crisis:

“The cures are not meant to be definitive; they are subject to all sorts of special assumptions and are necessarily related to the particular conditions of the time.”

=> not deontology but ethics of care …

Two case studies of caring finance in the Netherlands

• Open interview with two bankers at a treasury and documentary research

• Participant observation, interview on a farm, and price data collection & basic calculation

Contingent, cooperative capital

• Rabobank: large cooperative bank, AAA

• Senior Contingent Note (SCN) issued in 2010: value of the bond does not appear on the balance

sheet unless the bank’s equity capital ratio falls below 7%

in that case the bank’s core capital will be strengthened because the bank receives 75% of the value of the outstanding SCNs (“bail-in”)

High demand

• 10 year fixed rate Senior Contingent Note

• annual coupon of 6.875%

• twice oversubscribed (London, NY, Frankfurt)

• generated 1.25 billion euro

Caring dimensions:

• Responsibility towards tax payers: no need for bail-out

• Responsibility towards financial sector stability: incentive to keep risk levels low and capital-equity ratio high

• Less risk for moral hazard because there are no shareholders demanding high quarterly profits

• BUT: not demanded by members but developed by financial whizz-kids

Crowd funding for a green future

• Organic milk farm (diary, meat, cheese)

• ‘Boer-zoekt-buur’ crowdfunding by 30 consumers, 250 euro each, in exchange for 6 vouchers of 50 euro to be spent annually

• Products: meat, diary, nuts, ice cream, night in the haystack with farmers breakfast

• 50% financed through crowdfunding

• => ROI = 3% annually

Additional benefits for farmers:• No pay back in money: saves money for other

expenditures

• Pay back in products ensures the farmers fixed minimum demand Increased volume sold

=> helping to attain economies of scale.

• Personal relationships -> ambassadors

• Personal commitment -> pool of voluntary labour & management advise

Additional benefits for ‘neighbours’

• Known origin of organic food

• Opportunities to get involved (adoption iof a cow, voluntary farm labour’ dancing cow event)

• Price advantage of products: 30%

Social returns

• Green energy production

• Network supporting transition to a green economy

• Low risk due to Transparency Relationship building Reduced volatility in ROI and farm sales

Weaknesses

• Administrative burden for farmers: transaction costs (but cheaper than bank fees …)

• Low transactability of debt & returns: localness

Conclusion part III: caring finance

• Caring finance helps to reduce financial risk

• Caring finance is complementary to regular finance and can reap “normal” ROI

• Caring finance has already started ….

Sources:

• ‘Caring Finance Practices’, Journal of Economic Issues 47 (2), 2013, pp. 419-425.

• with Ricardo Crespo, ‘Would We have had this Crisis if Women had been Running the Financial Sector ?’, Journal of Sustainable Finance and Investment 1 (3-4), 2012, pp. 241-250.

• ‘The Lehman Sisters Hypothesis: an Exploration of Literature and Bankers’, ISS Working Paper no. 545, June 2012. The Hague: Institute of Social Studies.

• ‘Gender Trends in Developing Countries During Financial Crises’, ISS Working Paper no. 511, The Hague: Institute of Social Studies of Erasmus University Rotterdam, 2010, 20 pp.

• ‘Post-Keynesianism meets Feminist Economics’, Cambridge Journal of Economics 34 (6), 2010, pp. 1123-1144.

• ‘Caring for Economics’ in Ananta Giri (ed.), Creative Social Research: Rethinking Theories and Methods. Lanham: Lexington (imprint of Rowman and Littlefield), 2004, pp. 83-111.