Bill Kerr: What’s the cost of discrimination? We typically think in terms of the individuals or the groups affected. But racial and gender inequality also depress productivity at the national level. Economist Lisa Cook’s research shows that the exclusion of African Americans and women from the innovation sector erases about $1 trillion from the U.S. economy each year. That drag on economic growth has complex historical roots. And it’s been argued that the lack of diversity in the field of economics, itself, has limited inquiry in such areas. What’s being done to make the profession more representative of the general population? And what are the policy implications of research on topics like the Black-White wealth gap?

Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Bill Kerr. I’m pleased to welcome today Lisa Cook, who’s a professor of economics and international relations at Michigan State University [MSU] and a leading policy expert with decades of experience in Washington. Lisa serves on the executive committee of the American Economic Association, and she’s currently considered a top choice to serve on the Federal Reserve’s governing board, among other possible policy positions. Today, we’ll discuss what led her to become an economist, her work on Jim Crow and missing innovation, the role of childcare and family leave, and the policy landscape around diversity. Welcome to the podcast, Lisa.

Lisa Cook: Thank you, Bill.

Kerr: Lisa, your professional background spans academics, policy, and much more. Tell us a little bit about how you became an economist.

Cook: I was doing a master’s degree at the University of Dakar. I was interested in pursuing a PhD in philosophy and focusing on the concept of time in African philosophy. This wasn’t a specialty in any graduate program in the United States. So I showed up at the University of Dakar to do my Maîtrise [Master’s] in philosophy. And it was just amazing. There were many economic lessons that I started learning right off the bat as first time living in Africa. And the first day I went to buy supplies, and I paid $10 for a Bic pen that we would typically pay 10 cents for—10 cents in a pack of 10. So I spent a year writing this thesis on the concept of time in African philosophy. And the entire experience was a clash between reality and philosophy. And by the end of my time there, I had many more questions that were grounded in economics, rather than in philosophy. For example, how do some countries become rich like the United States, and others become or stay poor, like Senegal or Argentina or Brazil? And because those were presenting this kind of tension, I left Senegal not knowing whether I was, in fact, going to pursue a PhD in philosophy. And I just happened to have booked a trip to Kilimanjaro on my way back to the U.S. from Senegal. So I was crisscrossing Africa. I was lucky enough to be able to do that. And I wound up climbing Kilimanjaro with a Cambridge-trained economist. And he really enlightened me about the study of economics—that some of the questions that had emerged, he rightfully pointed out, I wouldn’t be able to answer with philosophy. That this was … a lot of these questions had empirical answers. I started Spelman as a physics and philosophy major. This quantitative part of me really wanted to answer these questions empirically. And we climbed to the first hut, and it took about five hours. And during that time, not only did he convince me that I should do a PhD in economics, he mapped out exactly what courses would be needed, what kind of math background would be appropriate for doing a PhD in economics, and any other classes he thought I needed to take. So it was transformative. That hike was transformative. When I came back down the mountain, I was on fire with respect to mapping out this career.

Kerr: Going up Kilimanjaro. So it must have been quite the conversation, with this interspersed “I need air desperately” kind of exhaustion.

Cook: That’s right.

Kerr: I know that one of the next places on your intellectual kind of roadmap is going to be the Russian economy. So get us to that point. So you’ve gone from thinking about time in an African sense. Where does the Russian economy come in?

Cook: I was motivated by these questions that related to development economics to apply to PhD programs in the U.S. I got into Berkeley. I was an intern at the World Bank, my first summer, in Chile. I saw sort of the extremes in Latin America. And I thought that may not be, even though I knew Spanish, that may not be where my interest lies. I’d already had an introduction to the Soviet economy, to Soviet political institutions, when I was at Oxford. So I had a basis to think about development, the post-Soviet transition, in Russia. So that’s how I came to studying Russia. But most importantly, there was a professor—Gregory Grossman—who focused on Russia on our faculty at Berkeley. And it was quite funny; I said that I was interested in studying the Russian economy as a window to understanding transition economies. And he said, “Okay, okay. Sure,” that he was about to retire, so there’s no way he could commit to advising me. And he said, “Well, if you want to study this, I’d be happy to not retire, and you would be my last PhD student. But in order to do this, you have to learn Russian.” And I thought, “Okay, well, if that was the rule, if he laid down the law like that, okay, I’ll have to do it.” Now, I think this would deter most people. But before that, I’d already studied five languages. Two years later I came back, I was speaking Russian. And he was completely shocked. He had to take it seriously that I was willing to understand not just the Soviet economy and Soviet political institutions that I had studied before, but that I was willing to do the empirical research to answer some fundamental questions about economic growth and the banking system precisely in Russia. So that’s how we got to the Russia part of my training.

Kerr: That’s an amazing connection. And one of the things we’re going to want to talk about through this is the economics profession. So these touchpoints you’ve had—either hiking up Kilimanjaro or someone delaying retirement—how does that kind of background inform some of your teaching and the mentorship you bring into the profession?

Cook: I think there are two big lessons that I bring to my teaching and to my mentoring. One is that there are so many ways to interact with an economy. And there are so many iterations of an economy that can exist at the same time. And I tried to get my students to understand this. Typically, they walk in with a dichotomy—either you live in a socialist country or you live in a capitalist country. And if you’ve lived in places like I have, like England or France or Russia or Senegal, you can see bits-and-pieces examples of socialism, and the same place where you see a lot of capitalism. And they can exist at the same time. So try to make sure they understand that there’s no one type of economy that exists in the world, introducing nuance into our discussions of institutions and economic organization. The second thing is, with respect to mentorship, sometimes you, in being a mentor, you have to listen to your mentee. And that’s exactly what this day-long mentor did for me. He listened for about, I’d say, maybe an hour and a half or two hours before he came back very thoughtfully and suggested what the path would be. So I think it was one of the greatest mentee-mentor relationships I’ve had in my career, and it only lasted for four or five hours—although the effects have been lifelong. I think, as a mentee, listening and asking questions and pushing back, and making sure that you have learned as much as you can so that your mentor can be effective, I think is a lesson that I’ve learned as a mentee.

Kerr: Lisa, you’re known as the best expert on understanding the cost of racism—and also sexism—around U.S. innovation. So tell us a little about your work about the Jim Crow South and the cost of racism for patenting and then kind of how you’re pursuing these lines of research going forward.

Cook: Okay. So I’ll start with one paper that is a historical paper that looks at the cost of violence to innovation and, therefore, to economic activity. I measured violence in three different ways—using lynchings, riots, and segregation laws—and I wanted to see how they affected patenting activity. No one had ever brought these data sets together in the economics profession. Why was I doing it? Well, when I was in Russia, writing my dissertation on the emerging banking system, I interviewed both bankers and managers, owners, entrepreneurs in the post-Soviet economy, in the Russian economy, to understand whether a market for credit was arising endogenously. Russia, at that point, didn’t have many of what we thought of as the precedents, the conditions, for a banking system to arise. They were posing questions to me: “Why can’t we get innovation going in this country? We had it during the Soviet period, and we don’t seem to be able to attract inventors now.” So this became a burning question. Yes, I put it on the back burner, but it became a burning question. So I started thinking about it after I finished my dissertation. So how would we measure this? Is there a historical experiment that could inform the Russians about their situation? African American inventors face the same institutions as other inventors in the U.S. And something changed for the African American inventors that would be similar to what changed for Russian inventors, or would allude to that kind of change—and that was that they were shocked by riots, lynchings, and segregation laws—and we could see what happened, what the result was. So this is why I was combining these data sets of violence and economic activity through patenting. And what we saw was that, when lynchings rose, patenting fell. And what we also saw was that 1899 was the peak year—even using 2010 patent data—the peak year for African American patenting. That was a scandal—that the kind of violence that they faced at that time could have a 100-plus-year effect, that the patenting, the number of people on a patent team for Black inventors, was still one by 2010, the median number. And for other patent teams, it was two, but it had been two for a very long time. That’s one of the papers that looked at the cost of racism. And to be more precise, I should have found 1,100 patents rather than the 700-plus that I found. And while this was a significant amount of patenting for that period, it would have been equivalent to that of a small European country at the time obtaining patents in the U.S. This was just one indicator of the losses associated with this kind of violence. And I extrapolated that to ask, “What if this had been the case for the entire country for all inventors, not just Black inventors?” Well, what we saw was that innovation would have been much more volatile. And we know that this is the basis of business investment that would have been negative, or it would have been a lot lower. The growth of business investment would have been a lot lower, which means that GDP would have been a lot lower. Okay, so that was one calculation. Then, for the modern period, I’ve looked at data from the 1970s to the 2010s, patent data from that period. And what I noticed was that African Americans and women patented at a different rate than their counterparts in the U.S. patent data. Now this is something I wasn’t looking for. It just fell off the page. Once I identified women and African Americans in the data set—and this is the first time this has been done in the same paper and in the same way—one of the big problems with identifying women or broadening the women who were identified the way I did it was to use non-English names. And you know more about this, Bill, than I do. But, anyway, I tried to make it more precise. And what I found in doing that, in identifying women and African Americans, not only did I find a lower patenting rate, I found that mixed-gender teams were more productive from an assignment-of-patent perspective than the overall population, than single-sex teams—whether they were male or female. So that suggested that something was going on that we weren’t accounting for—the composition of patent teams, the diversity of teams. And what a co-author Yanyan Yang and I calculated was that GDP per capita would be 0.6 percent to 4.4 percent higher if more women and African Americans participated in the innovation process, especially at the very beginning, where there is education in STEM fields, for example, and training. So those are the two periods that I’ve looked at to assess the cost of racism, or not being inclusive, in the innovation economy.

Kerr: Yeah. Amazing research that, as you point out, stretches back over 100 years and is today even $1 trillion worth of activity that’s missing as a consequence. Lisa, you’ve been a part of both the Council of Economic Advisers [CEA] with the Obama White House. You’ve also been on multiple transition teams. And I have a really complex first question for you, which is, what does a transition team do? Can you start there, and then tell us a little bit more about your other experiences.

Cook: Absolutely. A transition team prepares the new administration to implement policy upon arrival. And one thing that we appreciate in the United States is an institutional smooth transition of power. And that’s what we have largely seen. It was very cooperative when I worked on the Clinton-Gore transition team. So that was from the Bush era, and then from the George H.W. Bush era, and then on the Obama-Biden transition team. And that was a transition from the George W. Bush era. And on this transition team, the Biden-Harris transition team. And what you typically see, in the first two cases, at least, very, very smooth transition of documents, sort of the documents and conversations, relationships. You find out what is actually going on in the administration. And from the standpoint of institutions and continuity, you want to make sure that you have all the information you can have. It was critical that we learned about the SolarWinds breach during the transition. And that had to be dealt with right away. So let me move on to the other experiences I’ve had. And I would say, though this actually started with my being a page in the Georgia Legislature in the late 1980s. And that was an introduction to these various institutions of government and how they worked and how economic policy worked in each one of them. And I wound up going to the Council of Economic Advisers—as you know, it’s the internal think tank for the president. And as a senior economist there, I was tasked to work on patent reform. But you have to be able to work on any economic policy, any economic issue. And I wound up being the most senior person who knew about international finance and financial crises. So that was when the euro area was exploding, and I became the point person on the eurozone for the CEA. So it was an incredibly interesting time to be there to be up close and seeing how these negotiations go, to see how the information flows from what we typically do, say in academia or from the private sector—whoever—or from the government statistics that are put forward, how they get translated into advice for a president. That was an incredibly enlightening experience.

Kerr: It shows the adeptness that the economists that are part of the group need to have to be able to move over topics. Now, your research clearly goes back to Russian banking, so you’ve had connections in that space, but the capacity to be able to respond to the most pressing issues facing the country at a moment in time.

Cook: Right, right, you definitely have to be nimble. That’s right.

Kerr: So, Lisa, one of the traits of the new Biden administration is to promote diversity and inclusion in the cabinet and beyond. Tell us a bit about that process, how it’s playing out, and kind of what you anticipate seeing in the coming years of the administration?

Cook: I think it was really groundbreaking for the Biden-Harris transition to have as one of its core values promoting diversity. So having people make policy that looks like all of America. So I was pleased to work on that transition team and to have as many voices as many perspectives as possible, working on policy to make sure it was successful for all Americans. I think that’s the bottom line. You want to make sure that you’re not tailoring policy just to one small sliver of Americans, but to all Americans. I think that this is one of the most diverse cabinets that we’ve ever had in the history of the United States, with a vice president who is Asian American and of Asian descent. So we have it right there in the vice president and the president. So that leadership is absolutely critical. And it’s critical, again, for policy. Not for grandstanding, not for virtue signaling, but for actual policy formulation and execution. And you want as many people included in the economy as possible. And I know this as a person who is from a rural area, from Milledgeville, Georgia. And I see a lot of policy being made over my lifetime, my career in Washington. A lot of it being urban centric or city centric or East Coast centric. And I’m proud to raise my hand and say, “Yeah. There’s this thing called the Midwest, and we’re at the center of industrial production in the country.” And this is a population and a sector of the economy that needs a lot of attention. So I have that kind of perspective that I bring with respect to diversity as well. So it’s not just racial and ethnic diversity. It’s not just gender diversity, but also geographic diversity. Diversity along so many different dimensions. So I’m glad that there’s a focus on it.

Kerr: Excellent. Bringing it a little closer to even the world that you and I share, the economics profession, you’re also involved in helping to promote diversity in our field, which has been rather poor up until now. Tell us a bit about some of the programs that are in place, and also some of the expectations we hope for the economics trade.

Cook: I’ll start with the AEA [American Economic Association] Summer Program, and I was director of it for the last three years that it was at MSU [Michigan State University]. And it is a 14-year-old program. And it prepares students to do PhDs in economics. And encourages students to do PhDs in economics. And the focus is largely on underrepresented minorities. Now, underrepresented minorities have a special challenge, because their numbers were declining for years before 2016, for example. So this was not a good thing, if we think that having more voices, more different perspectives, different backgrounds, lived experiences, make for good economic policy, and for a good economics profession. So this is the program that I worked on. And this helped to, for example, just immediately, helped to diversify the ranks of the Federal Reserve research assistants program. And we have a lot of students who became research assistants at the Federal Reserve Board of Governors. So hopefully they will become Fed economists in the future, they’ll help to diversify the ranks of the Federal Reserve System. But they’ll also help, I hope, to diversify the ranks of the profession. We know what’s happening to Black women, for example. We know what’s happening to women, we know what’s happening to African Americans with respect to the share of PhDs awarded, and so on. So I think this is a positive development. And one thing, Bill, I’ll have to tell you, going online was, in a sense, devastating, because this program depends a lot on community building. And you can’t really do that without being in person. So we had to think of ways to engage them and in ways we hadn’t thought about before. We did it, and we pulled it off. At the same time, it was a bonus, because we could have research mentors for the students for their critical research projects. This was a major part of their experience, their eight-week experience, from all over the world, and experts in particular fields. And we had a lot of participation by other economists, whether they were at government institutions or other academic institutions. And that, to me, is the real spirit of the economics profession. Everybody was chipping in and being helpful, and I really appreciate that. Guido Imbens, who just won the Nobel Prize in Economics, gave two workshops on machine learning in 2019 and in 2020. So we really appreciated that—that partnership with many different parts of the profession. With respect to other programs, there are long-standing committees of the AEA—like CSWEP, the Committee for the Status of Women in the Economics Profession; CSMGEP, Status of Minority Groups in the Economics Profession; ASHE; the NEA. So the first groups that I mentioned are affiliated with the AEA. The second two groups—ASHE, the American Society of Hispanic Economists and the National Economics Association—are freestanding organizations. But there is a spirit of cooperation that I just have not seen in the history of these groups. There has been much more cooperation recently. And I think this is a very good thing for the profession. There’s no use duplicating efforts. Certainly, cooperation and collaboration has borne fruit. So I am thrilled to see this, and I’m thrilled to see the focus on greater diversity in the profession.

Kerr: Well, thank you for that important, important work there. Lisa, we haven’t had a chance to really talk about your work on the Black-White wealth gap of family leave policies. Can you just give us a little bit of a snippet of the research that you’ve conducted and some of the implications?

Cook: Absolutely. One of the policy proposals that I’ve put forward with respect to getting women to participate more in the innovation economy is childcare. And as I said, that’s not just important because we like to have women around. It is important, because we could substantially raise GDP per capita if we had more women participating in the innovation process. So yes, I am excited to see more attention on childcare—there clearly hasn’t been enough. I think this pandemic has made that clear. And this could go a long way for the entire profession, and not just for innovation. So the entire economy could benefit from better childcare and family-leave policy. So I’m glad to see this being incorporated into the president’s priorities.

Kerr: Lisa, you’ve obviously covered a lot of different terrains during your career, in a lot of different types of circles. You’ve helped bring important questions about racism and sexism to the front of economic research. What’s got you excited for the next five to 10 years? How do you see the field evolving?

Cook: What has me excited, that my fellow macro economists are asking the question of distribution is something that I hope I have spawned. It seems as though the question, once I posed the question about the economy and the cost of racism on the economy, others have tried to measure it. My former housemate, Chang-Tai Hsieh, and his co-authors Chad Jones, Pete Klenow, and [Erik] Hurst have this paper in Econometrica that looks at the cost of the misallocation of skilled labor due to discrimination. And we’ve never seen a paper like that before. So I am excited about the data that are available, the questions that my colleagues are beginning to pose, that the young people, the junior scholars, are beginning to pose that get at these issues, because I think that it’s not just in America where we have to ask this question. It’s all over the world that we have to ask this question if we’re going to continue to focus on higher living standards, on better outcomes, higher GDP and, therefore, higher living standards for everybody. And this is the compact that citizens have with their government, is increasingly higher living standards. So this is what gets me really excited. The direction of research and the data that are being brought to this research.

Kerr: Lisa, thanks so much for joining us today, sharing your research, some of the policy things that you’ve done, and this wonderful conversation.

Cook: The pleasure is all mine. Thank you, Bill.

Kerr: We hope you enjoy the Managing the Future of Work podcast. If you haven’t already, please subscribe and rate the show wherever you get your podcasts. You can find out more about the Managing the Future of Work Project at our website hbs.edu/managingthefutureofwork. While you’re there, sign up for our newsletter.