A reign of error

Nicholas Mulder
May 21, 2013

The recent discovery of crucial errors in a highly influential economic paper by Carmen Reinhart and Kenneth Rogoff has attracted much attention. In the wake of the Great Recession it has come as a setback  for those who have invoked the Reinhart-Rogoff thesis in support of the  case for austerity. But what if, more than just an intellectual defeat,  the controversy also says something about the academic environment that  produced it and its connection to elite decision-makers? Reinhart and  Rogoff, both distinguished economists with many rigorous empirical  studies and serious policy work at the IMF under their belt, can hardly  be accused of fabricating results for political purposes. But their  sloppiness is a symptom of the increasingly narrow feedback base in  high-level academic circles—it took a graduate student  to discover that a spread-sheet column was missing in the data-set used  in the paper—as well as a reminder of the disproportionately large  authority that scientific and academic studies can acquire when their  authors are closely connected to policy-making elites.

What, then, does this affair say about the ability of contemporary  Western institutions to devise effective policy to deal with their most  pressing challenges? It is difficult to give an answer to this question  that is not either carelessly acquiescent or hopelessly sceptical. Few  people are able to think clearly and constructively about the problems  facing industrial democracies while retaining a willingness to question  some of their basic tenets in searching for solutions.

But in Twilight of the Elites, Chris Hayes has done just that. Hayes has been editor-at-large at The Nation for several years, and as Americans may know, started his own current affairs talk show, Up with Chris Hayes, on MSNBC in September 2011; the success of his first show led to his promotion to prime time in April 2013 with his new show, All In.  His most recent book is an impressive feat of social criticism, not  least because its author is a pundit in the mainstream media. Up to this  point most social critics in the English language were either on the  margins of academia, like Slavoj Žižek, or intellectually strong in  their books but lacking and pessimistic in concrete political analysis,  like John Gray. But rarely do they emerge in serious form from the ranks  of political journalism and commentary.

Hayes’ analysis is radical in its scope but pragmatic in its  conclusions. He diagnoses American society with what he calls a Crisis  of Authority, which in his eyes is a more fundamental problem than  political turmoil or economic collapse. A Crisis of Authority eats away  at core of the social order, that is, it destroys people’s trust in each  other and in their leaders. The common denominator between all of the  disasters that have befallen America in the last decade – the disputed  2000 presidential elections, the bankruptcy of Enron, the Iraq War, the  dismal response to Hurricane Katrina, the Catholic Church sex scandal,  drug abuse in Major League baseball, the financial meltdown – is that  they are all cases of elite failure. Trust in politicians, bankers,  CEOs, intelligence experts, disaster relief coordinators, clergymen,  athletes, and even in the judiciary, is at an all-time low. There is a widespread sentiment that traditional institutions have failed the American people.

This analysis is not, in itself, very novel. In fact, this kind of  message is exactly what fills the pages and airtime of media on both the  left and the right, the critics of neo-liberal capitalism and the  libertarian enemies of big government. But as Hayes suggests, the  traditional left-right spectrum may not be the most useful analytical  dimension in which to cast the responses to a crisis of authority.  Instead, he identifies two broad lines of response: institutionalists,  who are alarmed at the sapping away of authority and try to reconstitute  it; and insurrectionists, who think that the corruption engendered by  these institutions is more dangerous and welcome their imminent  collapse. It is the difference between David Brooks on the one hand and  Julian Assange on the other.

What makes Hayes so incisive is his insistence that the main cause of  the ‘fail decade’ is a tradition that is very deeply rooted in American  society and in Western countries more broadly: meritocracy. The idea  that the most competent, the most intelligent, the hardest-working  should run things is a central feature of civil services, but also of  corporate culture and organized sports. It is the singular most  important principle of the prestigious academic institutions that are  set up to feed talent into national and international elite circles.

It is undeniably true that ability is unevenly distributed among the  population, and that selection according to ability can increase the  quality of institutions as a whole. But, Hayes argues, we have so  blindly placed our trust in meritocracy that we have failed to see that  it no longer fulfils the task for which it was designed. Meritocracy  today perpetuates the hold on power of an exceedingly small group of  very wealthy people and recruits almost no members from the lower and  middle classes of American society. For a system which justifies itself  by its supposed disregard for wealth, class, race or religion, this is  highly problematic. Social mobility, the very essence of the American  Dream, has ground to a halt. What’s more, it is becoming ever more clear  that meritocracy itself is to blame for this rampant inequality

Drawing from the work of the German social theorist Robert Michels, a  somewhat forgotten student of Max Weber and Werner Sombart, Hayes  formulates what he calls the iron law of meritocracy:  ‘eventually the inequality produced by a meritocratic system will grow  large enough to subvert the mechanisms of mobility’. The social pay-offs  to those who make it into a meritocratic elite are so big that those  outside the elite are increasingly excluded from access. Amidst rising  inequality the notion that a level playing field exists is rapidly  becoming unrealistic. At the heart of Hayes’ argument is the realisation  that we cannot think of the meritocratic system as a kind of unbiased  intelligence-selecting wonder machine detached from the profoundly  unequal society that it serves. Our elites are not continuously being  refreshed, improved and replaced, as they should be if meritocracy is to  be true to its name. Instead their members are drawn from a narrow  ruling caste to whom ever larger political power, influence and wealth  accrue.

The particular cases examined in Twilight of the Elites give  a sense of just how pervasive the meritocratic ethos is, and how  pervasive too the failure is that its fanatical pursuit has brought  along. Take for example Enron, the energy giant that was heralded as one  of the most innovative firms at the start of the twenty-first century.  Its management cultivated a climate of intense competition among its  employees, overtly sanctioning rule-breaking when it led to more market  share and higher profits. What brought the company down was the  recklessness that came along with this culture of achievement and  success at all costs. Competition and iconoclasm may break down  established barriers and spawn new ideas, but in the case of Enron it  also stimulated a multi-billion dollar accounting fraud.  When the company finally sued for bankruptcy in December 2001, some $65  billion in stock market value had vanished into thin air.

Even more troubling is the steroids abuse in Major League baseball,  which came to light in 2009. There have been some illuminating exposés  of systemic cheating in organized sports before – notably in cycling  – but few have connected this with broader societal attitudes toward  competition, not to mention rising rewards due to the growing influence  of commercial interests in such ostensibly non-political spheres. The  higher the rewards, the larger is the allure to not play by the rules.  When dealing with dope-using athletes, as with deceiving bankers and  corrupt politicians, there is always the temptation to blame the  individuals concerned, and to frame their guilt in terms of individual  responsibility. But it is in his search for structural causes for these  failings that Hayes shows himself to be a real social critic. ‘The story  of Major League Baseball isn’t about any one person’s misconduct, but  the story of a systemic breakdown that created institution-wide  incentives for fraud and a total failure of accountability. It is, in  other words, the story of Enron, the story of the housing bubble and the  crash, the story of much of the decade as a whole.’

Hayes is also strong in developing his critique of meritocracy to the  realms of information. The decline in the credibility of traditional  news outlets has ushered in ‘an informational interregnum’, in which  citizens have access to more information than every before, but lack the  means to select the appropriate information, much less determine its  accuracy. Most of the methods we use to evaluate how reliable  information is have themselves been undermined by institutional  failures. For example, proximity to a source used to be an indicator of  quality. Nonetheless, thousands of business and financial journalists  failed to pick up on the subprime mortgage bubble whose bursting set off  the Great Recession. The wisdom of political consensus—the idea that  when a bipartisan course of action is agreed upon it must always be the  best possible one—was shattered by the blunder in Iraq. Even the  assumption of good faith in the basic benevolence of most important  institutions (something like Max Weber’s concept of traditional  authority) has been heavily weakened by the continuously emerging cases  of sexual abuse emanating from the Catholic Church worldwide.

From a social and economic point of view the development of the West  after World War Two is usually seen as proceeding in two phases: the  first from 1945 to the mid-1970s, in which almost three decades of high  GDP growth produced hitherto unseen increases in social mobility and  income equality, all under the aegis of welfare states composed largely  of traditional and patriarchal institutions; and the second stage, which  lasts to this day, in which these patriarchal institutions were  dismantled as women, ethnic minorities and gays received more rights and  social barriers based on class and race broke down, even as income  inequality rose steeply in every single advanced economy. Looking back  over the last half century, it seems almost like there is a trade-off  between (actual) economic and (formal) social equality in which a  society can securely have one only at the expense of the other.

But the historical record is not destiny; there is nothing that  precludes us from having both kinds of equality, as long as we realise  that we cannot hope to have equality of opportunity for any length of  time without also attending to equality of outcome. A very fragile  balance will have to be struck and vociferously maintained. As Hayes  rightly points out, the educational system has thus far done most of the  heavy lifting in industrialised societies, compensating for ever more  inequality in outcome by providing some degree of equal opportunity; but  with budget cuts affecting government spending on education in most of  these countries, the means that schools and universities have to lift  those coming from the bottom to the top are growing smaller by the day. A  substantial and sustained reinforcement of educational resources as  well as a comprehensive reform of taxation regimes are obvious ways to  start addressing these issues.

This is not as utopian as it might seem. The video  about wealth inequality in America that went viral earlier this year  painted a shocking picture. But what few people picked up on was that  the research by Michael Norton and Dan Ariely  which documented the popular misperception of how severe the inequality  is also showed that ‘all demographic groups—even those not usually  associated with wealth redistribution such as Republicans and the  wealthy—desired a more equal distribution of wealth than the status  quo’. That popular opinion is not the main obstacle to a new balance  between equality of opportunity and outcome adds to the credibility of  Hayes’ claim that degenerated institutions rather than popular ignorance  are the main problem.

Altogether Hayes’ book, which upon publication last year immediately made it onto the New York Times  bestseller list, has received relatively little attention in Europe. I  think this is a pity, because there is much that the European public can  learn from his conclusions. It is naïve and irresponsible to suppose  that Europe would somehow be immune to the failures of meritocracy that  plague the United States because it lacks an equivalent to the American  Dream. Although competitive pressures in many countries may be lower  than across the Atlantic, Europe has seen the same opening up of  traditional institutions to a new ‘aristocracy of talent’ in recent  decades. We can add to this a litany of failures and scandals that  outstrips the American record. The institutions affected include the  civil service (think of the decade-long budgeting fraud that led to the  downgrading in 2010 of Greek government debt and the subsequent societal  meltdown of that country), the media (the 2011 British phone hacking  scandal), organized sports (the organized betting in European football matches), the financial sector (the manipulation of the Libor interest rate  by American and European banks), and even the European Union itself,  expressed in the continued worries about the future of the Eurozone.

What matters here is not so much who is or is not to blame, but the  fact that all of the aforementioned recent failures are systemic in  nature. They are abuses of power that take place in an institutional  landscape in which the playing field has become dangerously uneven.  Hayes’ analysis can be fruitfully extended to Europe considering that a  meritocratic turn similar to America’s took place here in the late  1970s, after the providential paternalism of the three post-war decades  was broken and a new generation entered power. Considering the vestiges  of constitutional monarchy and state enterprises that remain in many  countries, the rise of European meritocracy has proceeded more unevenly,  particularly in former Communist countries, where it has been prone to  fall prey to oligarchic tendencies. But this is not to suggest that  institutions that have resisted democratisation and do not have entry  criteria of ability and productivity are somehow preferable. We should  avoid thinking that simply because unrestrained meritocracy creates new  forms of inequality, we will have to fall back on older forms of  inequality: aristocracy, oligarchy or party elites.

In fact, the exact opposite is true. The only mitigating factors that  hold out a slight prospect of success for European meritocracy are  social equality and social mobility. In 2012 the World Bank reported  that the Gini coefficient (a number between 0 and 1, with 0  representing perfectly equal income distribution and 1 being the state  in which all income goes to one person) of all EU countries hovered  around 0.35, with that of the US at 0.38. Note, however, that the EU  average is born by a population of about 500 million people spread over  27 countries, ranging from Luxembourg (with a GDP per capita of over  $70,000) to Romania (GDP per capita around $10,000). The income  distributions of these countries do not overlap at all, which means that  the poorest 10% of Luxembourgers are vastly richer than the richest 10%  of Romanians. Consider, then, the magnitude of the fact that even with  these stark national differences, the United States is across the board  still more unequal than Europe.

When it comes to social mobility, a 2010 OECD report  concluded that in Denmark, Sweden, Norway, Finland and Germany, but  also in Australia and Canada and even in Spain, intergenerational social  mobility (measured by how many individuals remain in the some wage band  as their father) was higher than in the US. Moreover, the report found  that ‘intergenerational social mobility tends to be lower in more  unequal societies’. This supports Hayes’ argument that the spread of  wealth in a society has important effects on mobility, the engine of  meritocracy. Insofar as Europe has retained some degree of social  mobility and has avoided absolutely rampant inequality, it has a chance  of sustaining a meritocratic system. But if current trends towards  increasing inequality persist (the UK currently leads the way), then the writing is on the wall.

Many national leaders claim, quite opportunistically, that the EU is  to blame for their institutional problems. The European Union faces many  issues, and it needs to adapt institutionally if it is to survive. The  resentment towards the American government from the Tea Party and Occupy  Wall Street has its European equivalent in the Eurosceptic populist  parties on both right and left that have arisen in recent years. Anti-EU  parties criticise the Eurocrats in Brussels as another discredited  elite. Their failure is not so much that they are corrupt, but that they  are out of touch and impose unjustifiable burdens on national  populations. These anti-elite attitudes on both sides of the Atlantic  bear a lot of similarity to each other. Hayes claims that as meritocracy  degenerates, its shrinking recruitment pool becomes more blinkered and  thus less able to respond to popular needs. What this means is that  European elites are only as good as the national elites that produce  them.

At first glance, there is some reason to be mildly optimistic. For  example, the backgrounds of the leading European administrators span the  full range of social classes from top to bottom. For example, the  European Commission’s president, José Manuel Barroso,  was prime minister of Portugal before he came into office in November  2004. Yet he was the son of an accountant and a schoolteacher, and  underwent a period of youthful radicalism leading an underground Maoist  party in his student years. Nonetheless, Barroso was able to use the  meritocratic machinery that developed in Portugal after 1974, when four  decades of dictatorship came to an end. He graduated top of his class in  law at the University of Lisbon and pursued a doctorate in political  science at Georgetown’s School of Foreign Service. Because the  Portuguese government needed all the talent it could lay its hands on,  he made a rapid career in parliament and in the foreign ministry.  Barroso himself admits that, ‘it was not so much because of my  exceptional merit … a new leadership was needed, so that’s why many of  us came to politics so young and sometimes to very important positions’.  At age 36, he became foreign minister and over the years, has ended up  firmly on the center-right.

Other leaders of the European Union, like the Polish President of the  European Parliament Jerzy Buzek, come from prominent and  well-established political families. Still others, like the President of  the European Council, the Belgian Herman van Rompuy, come from the  middle class. And the foreign representative of the EU, Catherine  Ashton, is a prime example of meritocratic advancement: coming from a  Lancashire working class family of coal miners, she was the first in her  family to attend university. To some extent, such stories should  alleviate some of the distrust felt towards the EU: in their background,  Eurocrats aren’t any more or less elitist than politicians and  bureaucrats from any of the 27 member states. But if social mobility—and  therefore, meritocracy—is in decline across the continent, then we have  no less reason to worry that the quality of European leadership may be  deteriorating.

There is an added dimension to the European debate. The European  Union has always been a technocratic body, in keeping with the  pragmatism of its institutional godfather, Jean Monnet. An  arch-bureaucrat, he regarded parliamentary politics as a diversion from  the more important job of administration. His legacy is a mixed  blessing. Like any bureaucracy, the organs of the EU employ many civil  servants who are not elected, and this means it lacks democratic  legitimacy. Moreover, bureaucratic responsiveness to pressing issues  decreases rapidly with distance. The institutions based in Brussels may  be conveniently located between Paris, Berlin and London, but the EU has  made little headway against corruption, rural underdevelopment,  organized crime and mismanagement of resources in member states like  Bulgaria and Romania that are far away from its institutional centres.  More meritocracy is unlikely to help here; what is needed is more direct  assistance and better local government.

There may at least be one benefit in the long run, however. The  dominance of technocratic methods in the European Commission means that  EU policy, even after it has been watered down by political  considerations, is still driven by a core of scientific findings and  empirical research. In dealing with issues such as climate change, this  gives Europe an advantage over the United States, where the very  existence of climate change is itself still a highly contested political  issue. And so far the non-democratic nature of most of the Brussels  elite has largely insulated it from the excessively undue influence of  campaign financing and corporate bribes. Instead, lobbying takes the  form of national interest groups. Chief among these is the French  agricultural lobby, which has a disproportionate hold over Commission  expenditures in the form of the Common Agricultural Policy (CAP).  However, even though it is not directly elected, the European  bureaucracy still feels the effect of democracy: abolishing the CAP,  though financially sound and internationally fair, would trigger a  populist backlash against the French government which would make it much  more difficult to negotiate with on any other European issue. In this  respect the institutional obstacles to elite reform on both sides of the  Atlantic remain equally formidable.

The intellectual shadow which looms over Twilight of the Elites  is that of Christopher Lasch (1932-1994), one of the most interesting  American intellectuals of the second half of the twentieth century and  one of that era’s most profound and disturbing social critics. Like  Hayes, Lasch was not afraid to think his arguments through to their  logical conclusion. The difference between the two is that Lasch arrived  at much more pessimistic conclusions: in his view the social structure  of modern industrial civilisation produced psychological disorders of a  kind that would not be easily addressed without throwing away all the  advantages that this civilisation had brought—a dismal conclusion Lasch  reached in his book The Revolt of the Elites.

Hayes pays some homage to this title but he ultimately does not share  Lasch’s gloomy outlook, and sees the democratic system as the best, and  ultimately the only, arrangement capable of solving the problems that  it has itself created. His plea for a reorientation of public debate is a  big challenge, but it is based on ideas that are broadly appealing and  pragmatically shaped. For example, one need not strive to eliminate  inequality as such and thereby take away freedom and diversity as long  as one insists that all inequalities ought to be justifiable in relation  to their contribution to the common good. The Rawlsian difference  principle is not a terribly radical idea, coming as it did from the  well-considered judgment of a deeply liberal philosophy professor at  Harvard—one of the academic institutions whose contributions to  knowledge ultimately have societal value only insofar as they can be  disseminated to a student body that is as socio-economically diverse as  possible.

Hayes pins his hopes for reform on what he calls the ‘newly  radicalised upper middle class’: the group of young professionals and  college graduates who now face a future in which they will be less well  off than their parents, who have played by all the rules but are  dismayed by the shrinking elite of plutocrats who have gamed the system  and are using their hold on power to rig institutional arrangements in  their favour and to the detriment of the rest. This group represents the  high-water mark of meritocratic advancement, and for that reason it is  acutely aware of how much it stands to lose. How far-reaching the change  this group ultimately achieves remains to be seen, but we can agree  with Hayes that it is very likely that the radical middle- and upper  middle classes will be at the centre of any successful attempt at  reform. Sufficiently disappointed with elite failure to look for new  possibilities, but able and educated enough to engage with and influence  these elites, they are now the creative element in Western democracies  that can navigate between the dangerous extremes of apathy and anarchy.


All by
Nicholas Mulder