February 26th 2000

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Articles from this issue:

COVER STORY: Power, strikes and privatisation


EDITORIAL: The end of General Wiranto?

NATIONAL AFFAIRS: Kernot's leadership ambitions: unfinished business?

RURAL: Major debt crisis in rural Queensland

OBITUARY: William G. Smith SJ

FAMILY: The family strikes back

AUSTRIA: Haider: a warning rather than a threat

KOSOVO: They have made a desert and called it peace

ECONOMICS: Managing countries, managing companies

ASIA: Taiwan's poll a rowdy, close run thing

HEALTH: Treatable diseases rampant through Africa

BOOKS: Rabbi's defence of the Judeo-Christian culture, Rabbi Daniel Lapin

CANBERRA OBSERVED: Bush tells Canberra it won't be cajoled

Privatised power

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The family strikes back

by Maria Sophia Aguirre, Ph.D.

News Weekly, February 26, 2000
American economist Dr Maria Sophia Aguirre describes how after two decades of indifference and even hostility to the nuclear family, policy makers are having second thoughts.

Maria Sophia Aguirre, Ph.D. is an associate professor in the Department of Economics and Business, the Catholic University of America, Washington, DC

In this century the United States, as well as many other developed countries have gradually moved from being mainly an "agricultural-based industrial society" to an "information society", or "post-industrial era society." The second part of this century has also been marked by a serious deterioration of social conditions in a majority of industrialised countries.

The combination of these two factors has posed to countries both serious challenges and economic burdens. To these challenges countries have responded in different ways. Some have focused on welfare issues, some on financial issues, and still others have chosen the route of ignoring this matter altogether. More recently however some of the
developed countries have chosen to address what is at the heart of both the social deterioration and the economic problems it brings; that is, they have begun to re-evaluate and promote policies that strengthen and support the family.

Francis Fukuyama proposes three economic structural characteristics of the post-industrial

First, services increasingly displace manufacturing as a source of wealth. As a consequence, instead of working in a factory the typical worker in the post-industrial society is employed in a bank, software firm, hospitality carrier, university, or social
service companies.

Second, the role of information and intelligence embodied in both people and computerised machinery has replaced to some extent physical labor with mental labor.

Third, the production is globalised as inexpensive information technology makes it increasingly easier to move information across international borders. Rapid communication by television, radio, fax, and e-mail erodes the boundaries of cultures and countries.

People tend to associate the information age with the introduction of the Internet in the 1990s, but the shift away from an industrial era started more than a generation earlier.

This shift started with the deindustrialization of the Great Lakes in the United States and with comparable moves away from manufacturing in other industrialised countries. During the period from 1960 to the early 1990s, crime and social disorder began to rise, making inner-city areas a dangerous place to live.

Fertility in most developed countries fell below replacement levels, causing a reversal of the age pyramid; marriage and childbirth were less frequent while divorce rates soared; and out-of wedlock childbearing affected many. For instance, one out of every three children born in the United States and over half of all children in Scandinavia are born
out of wedlock.

Finally, trust and confidence in institutions have significantly declined. All of these factors are very relevant for economic growth and development in any economy since they hinder the most important resource: the economic agent and with it human capital.

Furthermore, trust is a basic condition for any economic activity for without it, any economic transaction becomes very expensive or is avoided. One can think as an example of the importance of trust for economic activity, on the capital flight that less developed countries experienced during the 1980s.

Trust on these countries' capacity to perform was lacking and the capital flight that
followed as a consequence was very harmful for these economies. Another example would be the problems caused for public health plans by distrust, on the part of Indian women due to some abuses in the area of reproductive health. This has often caused mothers to not vaccinate their children and to avoid prenatal care needed for
healthy pregnancies.

Fukuyama claims that the accumulation of these negative social trends is closely related
to the transition from the industrial to the information era.

The relationship is established by the link that exists between technology, economics, and

The changing nature of work, which substituted mental for physical labor, propelled millions of women into the work place and undermined the traditional understanding of family roles upon which the family had been based for centuries. Innovations in medical technology distorted the role of reproduction and the family in people's lives.

The culture of individualism, which in the market place encourages innovation and growth, spilled over into the realm of social life, corroding virtually all forms of authority and weakening the bonds that hold families, neighborhoods, and nations together.

There is a bright side however: social order, once disrupted, tends to get remade once again, and there are many indications that this is happening today. Families and governments are re-evaluating the role that family plays in the economy and in society.

Working women and men are searching for alternative working arrangements to make family and work obligations compatible.

There is an overall search for moral principles that could establish some common denominator in an ever-diverse multicultural society. One may ask why one could have expected this to happen.

The answer can be found in human nature.

Men by nature are social creatures and the family is its basic unit and most important manifestation.
When addressing the relationship between family and economics, it is important to consider the characteristics of the family and how the economy relates to these characteristics.

Nature has given parents not only the capacity to bring life, but to help each child develop (that is, to help their children with what is in them at first 'capacity' to become 'actuality', i.e. habits and therefore education). In doing so and in providing for
the right atmosphere, they are expressing their love for their children.

From an economic point of view, family is very relevant for several reasons.

First, the breaking down of the family is a symptom of social weakening, which is detrimental to the economy because of the social cost entailed, especially for government

Second, children develop better within a well functioning family, that is, with their biological parents in a stable marriage.

Thirdly, a child's academic performance is directly related to family structures, which
is an important aspect of human capital.

The changes that have taken place in Western families are familiar to most people and are captured in statistics on fertility, marriage, divorce, and out-of-wedlock childbearing.

This is also reflected in the rise of welfare cost to support broken families as well as its side effects: child re-habilitation, programs to deal with crime, drug abuse, teenage pregnancy, special education, and aging populations.

For example, in the United States, 1998 family assistance expenditures were five times higher than in 1970 in real terms, and health expenditures increased 15 times during the same period. Also in real terms, health expenditures increased by $225 billion between 1991 and 1996.

In addition to the welfare cost incurred, there is also an immense legal cost involved.

Billions of dollars are being wasted at the courts while these funds could be used in more positive constructive ways. These factors affect social stability and therefore affect the economic development of a country.

Like fertility rates, marriage rates experienced a rise in the 1960s in the US, Netherlands, Canada and other developed countries. Since the 1970s however, marriage rates have been falling rapidly while divorce rates have soared.

Approximately 50% of the marriages contracted in the 1980s in the US can be expected to end in divorce. The ratio of divorced to married persons has increased even faster due to the decline in marriage rates. In the case of the US, this increase has been fourfold in the space of thirty years, and it is the same for Europe.

Children born to unmarried women as a proportion of live births for the US climbed from 5%
to 35% from 1940 to 1998.

The United States has the highest rate of single-parent families because it has a high illegitimacy rate, a high divorce rate, and a low cohabitation rate relatively speaking.

Co-habitation is more unstable than marriage. Bumpass and Sweet (1986) find that unions
that began by cohabitation are twice as likely to dissolve after ten years than unions
that do not.

Neither the divorce rate, nor the illegitimacy rate, nor the single parent family rate alone captures the extent to which children will experience family breakdown and life in a single or no parent household. Of the 67% of children born to married parents in the United States in 1990s, it is estimated that 45% will see their parent divorce by the time
they are eighteen.

There is considerable scientific evidence that the psychological damage done by voluntary breakup of the family is greater than the involuntary breakup caused by death.

Based on all these facts, we can clearly conclude that the nuclear family has weakened across the board over the past forty years, and that the functions that these broken families still perform, like reproduction, are not being performed well. This has an evident impact on human capital and in the economy as a whole, since the family is both the source and transmitter of human capital and economic activity.

It is a well-documented fact that there is a strong correlation between broken families, poverty, crime, distrust, drug use, low educational performance, and low human capital.

Disagreements arise over causalities. Empirical evidence, however, suggest that the causality does not go from economics to the family but vice versa. Today, societies are much wealthier than in previous decades and yet they are more unequal.
In the US married women, regardless of their ethnic background, are better off than single

It is clear that the family as an institution exists to give legal protection to the mother-child unit and to ensure that adequate economic resources are passed from the parents to allow the children to grow up to be viable adults.

Fukuyama proposes two causes that contribute to the breakdown of the family. First, the development of contraceptives, and second the movement of women into the paid labor force.

It is important to note that the significance of contraceptives cannot be reduced to the decline in fertility. Fertility had already fallen in some societies before the pill's invention. In addition, an explosion in illegitimacy and a rise in the rate of abortions have accompanied the spread of contraceptives since the 1970s. Both facts tend to suggest that contraceptives have effects other than the decline of fertility; it also influences the stability of the relationship between men and women within marriage and outside marriage by encouraging promiscuity.

In recent years, the rise of females' income has also been related to the breakdown of the family. The assumption behind this relationship is that many marriage contracts are entered into with imperfect information: husbands and wives discover that once married, life is not a perpetual honeymoon, and that their spouse's behavior changes from what it
was before marriage.

As some economists suggest, trading one husband for another when they have discovered this reality was impossible for women before because they depended on their husbands economically. As female earning began to rise however, women became better able to support themselves and to raise children without husbands.

At the same time these economists argue that rising female income also increases the opportunity cost of having children and therefore lowers fertility. Fewer children mean less of what economist Gary Becker characterises as joint capital in the marriage, and hence makes divorce more likely. It is not clear however that working women who divorce
follow this rationale necessarily.

Perhaps it might apply to those cases where the parties enter marriage for its pleasures.

Another plausible reason is the fact that the entering of women into the labor force puts on them an additional burden when it comes to meeting the needs of both work and family.

It is empirically proven that the work structure is male-oriented and that it does not provide the flexibility that mothers of families need to meet their family obligations.

Therefore, their work becomes a source of tension in the marital relationship and it affects their work performance as well as the care of their husband and children.

Empirical evidence links higher female earnings to both divorce and extramarital

Japan and Italy have both low females labor participation and low divorce rates. On the other extreme we find the United States, Sweden, and the United Kingdom. A recent study of the Families and Work Institute (1995) reports that in the US, women's income is becoming necessary for the sustenance of the family. Women contribute at least 45% of the family income of married parents. The contribution is even higher in single parent households, mainly headed by women, where their contribution is of 90% or more.

The study also reports that only 15% of all women would like to work full time was even if this was not necessary to maintain the family, 33% would like to work part-time; and 31% would prefer not to work outside their homes.

Therefore it is not surprising that in more recent years we have seen an explosion of innovations in this front, ranging from flextime working hours to job-sharing positions, or companies that support professional women so they are able to work from their homes.

The cost of family breakdown has been very high, if one looks at the social welfare cost as a percentage of GDP between 1972 and 1998 of major developed countries. It is clear that for all countries, family breakdown has been accompanied by a significantly increase of social welfare costs during the 1970s which continued until 1992. At this time, the social welfare cost rate of growth slowed down, with the exception of Germany. The anomaly observed in 1992 for this country, corresponds to its unification and thus is not very significant.

It is interesting to consider that the combination of social security plus family and health welfare expenditures for developed countries were on the order of $1,216 billion dollars for the US, $354 billion for France, $258 billion for the UK, and $266 billion for Germany in 1996. These numbers are bigger than any of the less developed countries foreign debt. For example, US welfare expenditures are seven times the debt of Brazil, the largest debtor, and in 1996 it was 20% bigger than Brazil's GDP.

Such numbers underline why it is very important for developing countries to protect their families and population. Their present economic situation does not allow for the same mistakes that developed countries made and now are trying to repair.

Developed countries seem to be realising the consequences that the breakdown of the family has had in their society. Therefore they are seeking policies that will help reverse this trend. Great Britain for example, in the report entitled Supporting Families, has advanced a proposal to create an Institute for Family and Parenthood to advise parents in matters regarding the education of children. It also proposes the elimination of 24 hour-noticed civil marriages and the introduction of preparatory classes so as to encourage couples to become aware of their right and duties in marriage.

France in the last year has also shown a significant shift in family policies, which are directed, to reinforcing family supports. For example and among others, as of 1999, once again all families with at least two children receive family subsidies independent of their income level. (Family subsidies had been cut in 1997 for high-income families.) It also extends child-support to parents to 19 years old or 20 if the dependent is a student, and it expands credits and subsidies for family housing. Holland and the United States have introduced as a labor right, parental leave for family needs, thus giving rise to 'family days' benefits. The goal is to facilitate parents meeting their family, as well as their work, obligations.

When the family is considered as a fundamental good and defended, sound economic policy is
developed and real economic growth is possible. This is so because a well functioning family is essential for economic activity.

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