WHAT IS MERITORIOUS?

Um Capitalismo para o Povo: Recapturar o Gênio Perdido da Prosperidade Americana

WHAT IS MERITORIOUS?

It isn’t easy to decide what constitutes merit, of course. Consider an environment with which I’m familiar: American academia. Let’s say you 

 want to determine who the best professors are. How do you rank publications? Do you value the number of papers that someone has written, or their impact? How do you measure that impact—is it merely the number of times a paper has been cited, or should citations be weighted by the importance of the journal in which they appear? Do you value good citations (“This is a seminal

seminal paper”) and bad citations (“This paper is fundamentally flawed”) equally? What about teaching? How do you evaluate that? Should it be measured by students’ satisfaction, or should other criteria come into the picture? If so, which? And what about other dimensions, such as collegiality and “service” to the school? Any system of determining merit must assign various weights to each of these dimensions, a process that is inevitably somewhat arbitrary; moreover, that arbitrariness can create the presumption of unfairness and favoritism.

As that example suggests, a system of measuring merit should be efficient and difficult to manipulate, and above all, it should be deemed fair, or at least not too unfair, by most of the people subject to it. We can now begin to understand why support for meritocracy tends to translate into support for the market system. Markets are far harder to manipulate than, say, a list of tenure requirements that an academic committee has created, or, to take a broader example, the decisions of statist regimes determining which lucky citizens get which consumer products. The market system has the reputation, too, of producing efficient results. Finally, if the market system does not deliver excessively unequal outcomes and does not acquire

a reputation of rewarding luck rather than hard work, it will broadly conform with the notion of fairness most people have.

Naturally, not everyone embraces the market system. I suspect the reason that some intellectuals reject it is that it doesn’t reward what they think is meritorious: Lady Gaga makes a lot more money than Nobel laureates do. But in America, people largely accept the system—not merely because they think that it will deliver a reasonably efficient outcome but also because they consider it mostly fair. As in Horatio Alger’s stories, they believe, such virtues as honesty, frugality, and hard work will be rewarded.

rewarded.

 THE TENSION BETWEEN DEMOCRACY AND MERITOCRACY

But this rosy picture obscures a hard fact: meritocracy is a difficult principle to sustain in a democracy. Any system that allocates rewards on the basis of merit inevitably gives higher compensation to the few, leaving the majority of people potentially envious. In a democracy, the majority generally rules. Why should that majority agree to grant a minority disproportionate power and rewards?

A little more than a decade ago this dynamic played out neatly at the University of Chicago, an institution that still attracts market-oriented people, thanks to its association with the great free-market economist Milton Friedman. Who could be more promarket and promeritocracy than Master in Business Administration (MBA) students who attend such a school, investing tens of thousands of dollars and two years of their lives to reap the rewards of a meritocratic system? Nevertheless, in a move that contradicted the meritocratic spirit, University of Chicago MBA students voted in 2000 not to reveal their grades to recruiters. The reason was clear: allowing recruiters to distinguish among them on the basis of merit would benefit a minority of them at the expense

of a majority. Even the most meritocratic people, then, can vote against meritocracy when it damages their own prospects. No wonder meritocracy is so politically fragile.

Nevertheless, two factors help sustain a meritocratic system in the face of this challenge: (a) a culture that considers it legitimate to reward effort with higher compensation and (b) benefits large enough, and spread widely enough through the system, to counter popular discontent with inequality. The cultural factor is easy to spot in America, which encouraged meritocracy from its inception. In the eighteenth century, the social order throughout the world was based on birthrights: nobles ruled Europe and Japan, the caste system prevailed in India, and even in England, where merchants were gaining economic and political strength, the aristocracy wielded most of the political power. The American Revolution was a revolt against aristocracy and the immobility of European society, but unlike the French Revolution, which emphasized the principle of equality, it championed the freedom to pursue happiness.

 In other words, the United States of America was founded on equality of opportunities, not of outcomes. The subsequent economic success of the new

new country cemented the belief in assigning rewards and responsibilities according to merit.

This historical heritage is reflected in American attitudes today. The income-inequality gap in the United States is among the largest in the developed world. Yet in a recent survey of twenty-seven developed countries by the Pew Charitable Trusts, only one-third of Americans agreed that it was the government’s responsibility to reduce income inequality. (The country with the next-smallest proportion was Canada, with 44 percent, and the responses rose as high as Portugal’s 89 percent.) 2 Americans do not want to redistribute income, but they do want the government to provide a level playing field: more than 70 percent of Americans said that the role of government was “to ensure everyone has a fair chance of improving their economic standing.”

This belief in equality of opportunity is supported by another belief: that the system is actually fair. Sixty-nine percent of Americans in the same Pew survey agreed with the statement “People are rewarded for intelligence and skill”—a far larger percentage than in any other country. At the same time, only 19 percent of Americans thought that coming from a wealthy family was important for getting ahead; this compares with 39 percent in Chile, 53 percent in Spain, and a median response across all nations of 28 percent.

In America, the legitimacy of rewarding hard work is so pervasive that even undergraduates in perhaps the country’s leftmost precinct, Berkeley, seem to endorse it. Economists have created an experiment called the “dictator game” in which a subject is given a sum of money and asked to divide it however he likes between himself and an anonymous player. After running the experiment thousands of times, the researchers have calculated that, on average, people give 20 percent of their money to the anonymous players, presumably out of altruism or compassion. Recently, economist Pamela Jakiela changed the conditions of the experiment. In one treatment, the subjects—Berkeley undergrads—were told that the anonymous players had worked hard; in another treatment, they were told that the players had done nothing. The students, it turned out, were much more willing to reward the hard workers than the slackers. In still 

 another experiment, in which the subjects who were allocating the money had to work hard to gain it (by sorting beans, as it happened), they were much less willing to give it away than were those who who had not worked hard. This goes a long way toward explaining the redistribution preferences of the so-called gauche caviar: trust-fund kids who have not earned their way and embrace socialism (gauche is French for “left”) to attenuate their sense of guilt for their privileged lives.

Don’t suppose that the culture of meritocracy is universal. When the same experiment was conducted in Kenya, it yielded opposite results, with the subjects more willing to reward luck than hard work. But in America, from Berkeley to Boston, people believe in greater reward for greater effort, and that belief helps protect meritocratic capitalism from the forces that threaten to undermine it.

A meritocracy can’t survive on a supportive culture alone, however; it must also confer benefits large enough for people to recognize them. Meritocratic systems emerge when their potential benefits are the most acutely felt. At the national level, this tends to occur in wartime, especially when the country’s survival is at stake. In 1793, when the French Revolution was threatened by the invading armies of other European powers, the Jacobin government started to promote talented soldiers rather than well-bred ones. This simple innovation allowed the Revolution to beat back Europe’s better-armed and better-trained forces. A similar effect was demonstrated by a friend of mine who felt sick one day. His wife offered to call their doctor friend. “No, I’m really sick,” he said. “I need a real doctor.” When your life is in danger, there’s an enormous benefit in choosing according to merit instead of loyalty.

Thus a meritocratic system, to engender a broad consensus, must confer benefits that are relatively sizable, even if they aren’t quite as huge as saving a country from defeat. That isn’t an easy task. In politics, for example—a field in which value is mostly redistributed rather than created—the benefits conferred by meritocracy are relatively small compared with the benefits conferred by cronyism. If I appoint my friends to office, even when they aren’t terribly competent, I lose relatively little efficiency and gain quite a lot of power. Hence meritocracy is difficult to sustain in government.

The same is true when a firm enjoys a monopoly. Since the firm’s market position isn’t at risk, it doesn’t benefit much from hiring the best people; instead, its executives focus on bureaucratic infighting, trying to grab an ever-larger share of the profits from each other—and, once again, hiring loyal workers pays more than hiring competent ones. Contrast that with what happens in a competitive market, in which firms find themselves constantly threatened by competitors. It doesn’t pay to struggle for a larger slice of the pie if the pie is at risk of disappearing: a larger share of zero is still zero. Better to fight to preserve the pie, even at the cost of getting a smaller piece. This is another way in which meritocracy is intrinsically related to free markets. Without the threat that arises from economic competition, organizations have no reason to be efficient and thus no reason to be meritocratic.

Meritocracy can give rise to virtuous circles.3 The more frequently citizens see that the principle of rewarding merit is consistently and fairly applied, the more willing they are to accept this principle. Their very acceptance means that the system will be applied more and more consistently and fairly, which in turn further increases support for it. But when a system is corrupt, it induces people to try to cheat. This makes the system even more unfair—a vicious circle.

These “circles” point to the existence of what economists call multiple equilibria—stable situations that are very hard to change. For example, a country that has developed a tradition of meritocracy will generally be able to sustain it, even under adverse conditions, whereas a country in which the meritocratic tradition has never developed will have great difficulty introducing it. In an equilibrium, small perturbations tend to have no effect. If the perturbation is sufficiently large, however, an economy can find itself in a different equilibrium—from which it will have difficulty moving away.

The good news for the United States is that it occupies a meritocratic equilibrium. But we have witnessed some big perturbations in recent years, such as the University of Illinois clout scandal, in which subpar applicants to the school received special considerations based on their connections to politicians and university trustees,4 and, on a much broader scale, the financial bailout, in which bank CEOs walked away with hundreds of millions of dollars after destroying their banks. When 

 the fairness of the rules grows questionable and the benefits of the system are distributed too unequally, the consensus for free-market meritocracy can collapse. Returning to a meritocratic consensus is next to impossible once a country reaches that point. Unfortunately, America is approaching it.

Several powerful forces are threatening to drive America away from a meritocratic equilibrium and toward a nonmeritocratic one. Recall that, in order to survive in a democratic country, a free-market meritocracy must offer large, widespread benefits to citizens and possess a welcoming culture. In the United States, both of these qualities are being challenged—the first by a reduction of the benefits that most people derive from markets and the second by a delegitimization of markets as a good method of rewarding the meritorious.