528. Meritocracy and equal opportunity
A question is how one measures merit, and how it is to be rewarded.
Pecuniary reward depends on price, which is settled by the (im)balance of
demand and supply. Thus merit does depend on satisfaction of others’ needs and
wants. This requires reasonably free markets. A society that yields benefits
that are determined by need and are undeserved by talent and exertion will
slump and lag in prosperity. Markets are needed because in contrast with
central planning they make maximal use of localised knowledge of needs, wants
and opportunities. They give room for diversity, in tastes and initiatives for
production, supply or entrepreneurship. Competition is a learning system, as
Friedrich Hayek claimed (Hayek, 1945). A justification of advertising is that
it reduces search cost, informing users of the availability and quality of
supply of products, for both consumer goods and inputs for production.
The economist Amartya Sen, who among economists has an exceptionally
broad view, emphasising justice and morality, offered the concept of capability to realise potential, for
which one needs not just room for action, but also access to the resources
needed.to utilise that room. A blind person needs braille and a guide dog, a
lame person a wheelchair.
Capability requires education and schooling, to draw out the realisation
of potential. Teaching involves a dilemma of push and pull. How far to go in
transmitting knowledge or competence to pupils, and how far to go in leaving
them to their own resources, another dilemma. The Russian developmental psychologist
Vygotski offered the metaphor of scaffolding.
Teaching is like building a bridge along a scaffold, until the bridge can
support itself, after which the scaffold can be removed. Not all children have
access to schooling, and the effect of schooling depends on education and
support, in particular language ability. Covid-19 has increased inequality in
this, with the imposition of home schooling, where children differ in the resources
they have, in terms of space at home and a computer, attention from parents and
the educational level of those.
Next to public schools there are private ones, often of higher level and
quality, also offering networks of advantageous contacts, with higher fees,
accessible only to those with well-to-do and highly educated parents. An
argument for such elite schools might be that they promote excellence and hence
higher potential merit, but they do create greater inequality of opportunity.
This can be reduced with liberal scholarships, but only in part. Partly out of
a drive for more equality, school programmes have been standardised in skills
that can be measured. This is part of a more general drive to standardise
programmes, products, procedures, in many services, out of an urge to control
everything, and make them measurable to enable such control. One finds the
drive towards measurement and control everywhere, out of a fear of deviance,
but it also kills experimentation and originality.
After a period of going up, social mobility is now stagnating and even
declining. It had to decline sometime. Not everyone can be above average. For
it to continue, there also has to be downward mobility, but the well-to-do
fight the downward mobility of their dependents, by submitting them to a
rigorous learning discipline, and sending them to expensive elite schools and
remedial teaching, and offering inherited leadership positions or property.
Learning goes beyond the acquisition of skills. Vygotsky, mentioned
before, characterised teaching as drawing understanding, insight and capability
out of the pupil, mobilising its potential, to develop and discover its ability
and interest, and find its path in life.
Equality lies in the eye of the beholder. Recently, in a newspaper I
read a quote of Carol Andersen in Politico, in 2016: ‘If you have always been
privileged, equality sounds like suppression’.This is certainly part of the
uproar of populists against protests from BLM (Black Lives Matter), by whites
who were previously privileged compared to blacks.
Many economists and policy makers bandy about the notion of an ‘equal
playing field’, for everyone to have equal chances in competition. And indeed,
one can try to prevent entry barriers to markets, discrimination in labour
markets, nepotism and corruption, but access to talent, information, knowledge
will always remain unequal.
Many people get rich without merit, in inheritance and investment in
houses and other assets. Flexible workers run more risk of unemployment and
have fewer social benefits and lower or no pension than those with an employment
contract. Immigrants are often discriminated in the access to labour markets,
housing and other facilities.
There are also problems with markets. Its blessings are routinely
blocked or distorted by monopolies, oligopolies, lobbying, lack of transparency
of quality, and other so-called transaction costs. Transaction costs are costs
of contact, contract and control. Costs of contact lie in the need for supply
and demand to find each other, costs of control in judging quality and
reliability, monitoring adherence to agreements, and haggling and litigation in
case of disagreement.
One kind of transaction cost, yielding relational risk, is that associated with so-called relation-specific investments, dedicated
to a partner, and worthless when the relation breaks. This creates dependence
on the partner that may be used by him/her to bargain for a greater share of
jointly produced added value, threatening to walk out and leave you with a
useless asset. The investments can be specific in facilities close by the
partner, in dedicated tools or installations, in training, knowledge and
skills, the building of trust in the partner, knowing who is who in the
partner’s organisation. An example is submitting an article or book for
publication by a journal or publisher. You are supposed not to submit to others
at the same time. This limits competition and is a nuisance to the author, but
it is understandable because the journal or publisher makes investments of
judging the proposal and sending it out to reviewers, specific to this
proposal, which are lost when the author switches to another journal or
publisher. The exclusive relation should last sufficiently long to recoup the
specific investment. For the duration, this excludes competition, which flies
in the face of public competition policy. This yields a dilemma for that
policy: should one maintain openness to competition or allow temporary
exclusiveness to stimulate specific investments, to encourage durable
collaboration for the ‘novel combinations’ of innovation that require dedicated
investments.
I have experienced problems in the measurement of merit as director of
an academic research institute, where there was external pressure from funding
agencies to evaluate the merit of researchers on the basis of number of their
articles, weighted by the standing of the journal, measured by its citation score, the average number of
citations of articles in the journal, or by the citations of a specific article
or book. However, supposedly objective counting of citations is tainted by
citation groups of scholars colluding to cite each other, and there is the
phenomenon of citing celebrities because that is the thing to do, in order to
have a paper accepted for publication. Against the stream, I pleaded to also read
a published book now and then, and form a substantive judgement of it. But that
is seen as opening up to prejudice, inequality and perhaps corruption. I grant
that this is a real problem, and some form of control may have to be devised.
There is such a form, in peer review once in a while, where judgements are
discussed by independent peers who have actually read at least some of the
publications involved. Judgment and control is then based not on blind
measurement, but on dialogue.
The difficulty of judging merit depends on the kind of product or
service. The merit of housekeeping and education is not measured.in the
National Product So-called search goods
can be judged prior to consumption because one is more or less familiar with
them, such as a house, car or washing machine. Other goods, called experience goods can only be judged in
consumption, such as a concert, piece of cake or professional service. To
repair this, there is a demand for prior professional evaluation, in reviews
and advice. A third type is credence
goods, which one cannot judge even after consumption, such as advice of a
consultant. If I could judge it, I would not have needed it. These search costs
evoke the service of proxy judgement, by a commentator on a concert, a film
critic, or accreditation of the supplier.
Advertising can distract with misleading, irrelevant or dense information,
such as the ‘small letters’ of an insurance policy. Providers of lotteries brag
about how much one can win, but do not admit that the probability of doing so
is negligeable. It is advantageous for an organisation to build up a reputation
of reliability of a product and communication, but when in need the
organisation can misuse it to deceive.
Power in the market, from offering much employment, contributing to the
national product, is used for lobbying, pressing governments for subsidies,
slack rules of pollution, low taxes or slack control of tax evasion, and low
energy prices, on the threat of moving employment abroad when they are not accommodated.
Here, in immoral conduct in the market, the principle of a prisoners dilemma is at work, which will be discussed later. One
may honestly wish to behave morally, but cannot afford to do so unless one’s
rivals conform, but they all think that and nothing happens.
This is not the place to be exhaustive in the enumeration of market
failures, but to illustrate their seriousness, I give a few. The financial
crisis of 2008 was due, in large measure, to the fact that banks had incurred
excessive risks in giving dubious loans and mortgages and when those defaulted
and brought banks close to bankruptcy, the banks were bailed out at the cost of
citizens, on the argument that otherwise the financial system would crash. A
second example is the Ponzi scheme,
such as engineered by Bernard Madov, where people are enticed to buy a stake in
a project on the promise of large returns, and to lure customers, returns to
early buyers are financed from the entry of later ones, which requires ever
more new buyers until the scheme is unmasked and collapses.
There are network externalities,
where the utility of something increases with the number of buyers of products
with the same technical standard, as with telephones, which require that users
employ telephones with the same standard. If the standard is proprietary, this blocks
competition. Then the first to establish a significant number of buyers
establishes an advantage that followers cannot overtake. This yields an
argument for establishing public standards accessible to all. More generally,
large firms can raise entry barriers to new competitors, not only by such
proprietary standards, or patents, but by threatening to lower prices to a
ruinous level if the new entrant appears. Patents are intended to encourage
innovation, but are often built or bought to block entry, and are then left
unexploited.
In markets, demand may be perverse, not serving public interest. There
is great demand for president Trump, but it is largely built on lies, rhetoric,
deceit, unfulfilled promises, and a lurid lure of violence. There is demand for
excitement, entertainment, unhealthy foods, addictive substances, complot
theories, riches for the sake of riches, and less for culture.
In this dilemma of meritocracy and equal opportunity also, as in other dilemmas, we need a combination of both sides, of meritocracy and equal opportunity. Entrepreneurship can be encouraged, but needs to be blocked when it is against public interest or safety, or justice. Sandel (2012) narrates the case where the mayor of New York wanted to offer a free concert in Central Park. Because of limited capacity of the park, one did have to collect a free ticket of admission. An entrepreneur recruited strays from the street to stand in line for a pittance, to collect admissions to be offered to the highest bidder, thus frustrating the aim of a free concert. Markets are desirable, in principle, but not always. Sometimes, something loses its value when left to the market. Sandel gives the example of a prize, such as the Nobel prize: what is the worth of it when it can be bought and sold to the highest bidder? What is the worth of a diploma when it can be bought? When markets are indeed desirable, they never work perfectly, and need to be corrected, in ways that differ between industries. Markets need to be regulated, to prevent entry barriers, limit transaction costs, increase transparency, block monopolies, control lobbying, insider dealings, corruption, discrimination and misleading advertising.
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Do you lean more
towards meritocracy or equal opportunity
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Can you give more
cases where merit is difficult to measure
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Can you think of a
case where unequal opportunity can be improved while preserving meritocracy
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Can you think of a
relation-specific investment
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Do you agree that
markets may have to be excluded from certain actvities and regulated in others
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Are you in favour
of a UBI
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