The Meritocracy Trap

by Daniel Markovits

  The rich dominate the financing of political campaigns—to an astonishing degree. The richest 1 percent of Americans contribute more to political campaigns than the bottom 75 percent combined. Really large contributions are more concentrated still, as are the early contributions that winnow credible candidates and limit the options that voters will eventually choose among. A mere 158 families provided nearly half of all campaign contributions for the initial phase of the 2016 presidential election, and by October 2015 these families had collectively contributed $176 million. The Koch brothers’ network of super-rich donors would spend nearly $1 billion on promoting free-market policies.

  Meanwhile, lobbyists hired by elites dominate the policymaking that elected officials do once in office. There are roughly twice as many registered lobbyists in Washington today as there were in the early 1980s, and lobbyists who work for business, and therefore wealth, rather than for unions or the public interest comprise 98 percent of the increase. Even when it is narrowly defined, lobbying dwarfs campaign finance in scale: in a typical year, expenditures on federally registered lobbyists exceed $3 billion, and large firms spend perhaps ten times as much on lobbyists as on campaign contributions and nearly 90 percent more than they spent as recently as the late 1990s. Moreover, elite influence over policymaking extends far beyond formally registered lobbying. Corporations, for example, target their philanthropy at causes associated with legislators who sit on the committees that regulate them—so that charity mimics lobbying (only leveraged with public funds in the form of the tax deduction for charitable giving). In the limit case, lobbying of public authorities merges into direct private funding and control over public functions: the Walton Foundation (connected to the Walmart fortune) has spent over $1.3 billion on K–12 education and committed to spend another billion, with a heavy focus on charter schools (and the attendant disruption of teachers’ unions).

  All this money is not spent in vain. Donors, both directly and through their lobbyists, dominate the time and attention of candidates and officeholders. Elections begin, in what is called the money primary, with summits at which hopefuls court favor from groups of super-rich donors, often in resort towns (for example, Rancho Mirage, California; Sea Island, Georgia; or Las Vegas). Winning, moreover, yields no relief from the need to raise money. A “model daily schedule” for congresspeople calls for more than four hours directly soliciting donors every day in office. This roughly triples the time spent discussing policy with nondonor constituents, a disparity so great that politicians are sometimes said to resemble telemarketers rather than government officials. When Mick Mulvaney, the Trump administration’s director of the Office of Management and Budget and (as of this writing) acting White House chief of staff, recently told the American Bankers Association that when he was in Congress, “If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you,” he merely said aloud what everyone in American politics already knows. Politicians spend the overwhelming majority of their time with donors and lobbyists whose views they promote.

  Law and policy unsurprisingly follow the path set by money, time, and attention. Sometimes, money openly buys policy, with hardly any disguise. The Walton Foundation’s spending has transformed public education in Washington, D.C., where the foundation has “in effect . . . subsidized an entire charter school system in the nation’s capital, helping to fuel enrollment growth so that close to half of all public school students in the city now attend charters.” In other cases, money’s influence is less obvious—because disguised—but no less real. The financial sector, seeking to relax regulations limiting certain derivatives trading adopted through the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the financial crisis, bypassed the relatively public House and Senate finance committees and lobbied the low-profile agriculture committees (whose jurisdiction over the derivatives stems from efforts by nineteenth-century farmers to stabilize commodity prices). Sometimes, lobbying produces results so narrowly tailored to special interests that that policy becomes almost farcical. The casino lobby, eager to draw tourists (especially to Nevada), has exempted winnings at blackjack, baccarat, craps, roulette, and Big Six wheel from the income tax withholding regime used to stop foreign visitors to the United States from committing tax fraud.

  These examples, moreover, are not exceptional. They are typical, even commonplace. Systematic studies reveal that law and policy respond sensitively to elite preferences while remaining almost totally unresponsive to the preferences of everyone else. Indeed, the rich dominate even the upper middle class: when preferences at the 90th and 70th income percentiles diverge, policy continues to respond to the 90th percentile and is only minimally responsive to the 70th. Even when the middle class and the poor unite against the rich, policy adjusts to the preferences of the rich and ignores the shared preferences of the middle class and the poor. Economic inequality begets political inequality, and meritocracy undermines democracy.

  THE INCOME DEFENSE INDUSTRY AND THE RULE OF LAW

  Meritocracy undermines democratic politics not only at wholesale, when laws are made, but also at retail, when they are applied to particular people. Meritocracy has created a new class of super-skilled bankers, accountants, lawyers, and other professionals who seek favorable personalized treatment from government—concerning regulatory requirements, for example, or tax shelters—on behalf of individual clients. These professional services dwarf campaign contributions, lobbying, and political philanthropy, even combined. The trusts and estates bar alone comprises over fifteen thousand lawyers. The total revenues of the hundred largest law firms in the United States reached $90 billion in 2017, the revenues of the big four accounting firms reached $134 billion, and the revenues of the ten largest investment banks totaled over $250 billion. All these professions empower the rich to resist regulation and thereby disempower the rest from subjecting wealth to law. They are, moreover, creatures of meritocracy—of the training that meritocratic educations provide and of the enormous labor incomes that meritocratic work affords. In this way, meritocracy directly produces a new means for undermining democratic self-government.

  Ideology disguises this lever of elite power. The common view supposes that every property owner enjoys the same rights and protections—that she owns things in the same way—no matter what or how much property she has. According to this view, the state’s relationship to private property is scale-blind, so that large fortunes and small holdings receive the same legal protections, and the hedge fund billionaire owns his portfolio in exactly the same sense in which the high school teacher owns her house. But in fact, size matters for property rights, qualitatively as well as quantitatively. A middle-class person must comply with whatever regulations the state imposes on her and forfeit whatever taxes it assesses. When the schoolteacher’s real estate taxes go up, she simply pays. But a rich person can use his swollen fortune to hire skilled professionals to resist regulations and taxes, meeting the state on a level and often even a favorable pitch. A billionaire who faces a new tax can restructure his holdings, using perfectly legal tax shelters to avoid paying most or even all of the levy. The middle class are lawtakers, which leaves their property immediately vulnerable to regulations and taxes; the rich, by contrast, enjoy discretion to accept or reject law, which insulates their property from government intrusion.

  Meritocracy enhances the elite’s power to resist the state. Meritocratic inequality creates incentives for the most skilled workers to grow rich by devoting themselves to defending still richer people’s fortunes against government encroachment. By inventing the superordinate private-sector job, meritocracy endows a class of workers—accountants, bankers, and lawyers—with the means and the motive to block the state’s efforts to seize, or even just to regulate, elite wealth.

  These jobs are new—direct creations of meritocracy. Historically, the private sector did not value managerial and prof
essional skills, and the state (which required such skills) faced effectively no private competition for elite labor. Into the early twentieth century, top civil servants were paid ten or even twenty times the median wage. And even at midcentury, elite government incomes remained roughly equivalent to their private-sector counterparts. In 1969, a congressperson was paid more than he might make as a lobbyist, a federal judge received perhaps half what he might have commanded at a law firm, and the secretary of the treasury was paid a salary that was smaller than but broadly comparable to what he might have made in finance. The best-educated and most skilled workers therefore naturally gravitated toward government or other public jobs (as when subsequent sons, deprived by primogeniture of inherited lands, joined the military or the clergy), simply because they had no better (or even credible) private alternatives. This kept regulators ahead of the people whom they regulated and helped the state effectively to govern even its richest subjects.

  Meritocratic inequality, by contrast, sharply increases elite private-sector wages, even as democratic sensibilities keep public-sector wages stagnant or falling. Together, these developments have completely reversed the earlier order, so that superordinate workers now earn many times more in the private sector than in government jobs. A congressperson becoming a lobbyist might multiply her income by a factor of ten, from $175,000 to perhaps $2 million; the chief justice of the Supreme Court earns roughly $270,000, while the very most profitable law firms pay their average partners over $5 million annually, or roughly twenty times as much (and the signing bonus paid to former law clerks at the Supreme Court, who are perhaps two or three years out of law school, is now $400,000); and the secretary of the treasury earns a little more than $200,000 annually, whereas the CEOs of JPMorgan Chase, Goldman Sachs, and Morgan Stanley might average incomes of $25 million, more than a hundred times as much.

  The absolute salary numbers, and even just the ratios between elite private- and public-sector salaries, are astronomical. Moreover, and critically, the qualitative break between the prices of the lives lived by the rich and the rest occurs above the salaries of elite government workers but below the wages of the elite private-sector workers—lobbyists, lawyers, accountants, and bankers—who provide private influence over public policy. (This is almost inevitable, as house prices in elite neighborhoods are determined by the salaries of the elite private-sector workers who buy the houses.) In one sense, elite government workers make a lot of money—several times the median income. But it does not take much human imagination to understand that the broad elite of public servants naturally desire the society of their private-sector peers: that they desire to live in the same neighborhoods, to send their children to the same schools, and generally to mix on roughly equal terms with the people whom they knew at college and in graduate and professional school, and whom they regulate in their daily professional lives. Elite public officials need not be venal or otherwise corrupt to grasp hold of higher incomes or to join the society of the rich when opportunities in the private sector present themselves.

  The opportunities invariably do present themselves. Elite public officials possess precisely the educations and skills the meritocratic private sector most values. (Meritocracy’s hostility to prejudice expands these incentives to all elite workers—the presiding partner of the hyper-elite and conservative Cravath law firm, for example, is today a daughter of Pakistani immigrants—so that there no longer exists a subset of the super-skilled that is forced by chauvinism to resist rather than to serve wealth.) Government departments have become, in the shadow of these incentives, “barely disguised employment agencies,” connecting public officials to future private employers. Even elected officials have gotten in on the act. In 1970, just 3 percent of retiring members of Congress became lobbyists; today, 42 percent of representatives and 50 percent of senators become lobbyists on leaving public office. (The move is so familiar that it has become expected: when Eric Cantor recently retired from his post as House majority leader, for example, the New York Times editorial board predicted that he would take a job in finance. And indeed, Cantor joined a boutique investment bank, a choice that the Wall Street Journal thought natural, given that he “has long been seen as a liaison of sorts between the GOP and Wall Street.”)

  Overall, talent now flows into the private sector in numbers so great—of demographic proportions—that they transform entire cities. Washington’s elite job market is today dominated not by government hiring but rather by a private-sector effort to lure away public workers that has become pervasive, even inescapable: placemat “help wanted” ads at Washington coffee shops—for private jobs that pay midlevel officials starting salaries of a quarter million dollars or more—are sold out years in advance. Indeed, Washington is now among the nation’s leading cities in venture capital deals. And so much talent now flows into businesses and professions that seek to exert private influence over government policy that the D.C. metro area has recently added over twenty thousand households to the richest 1 percent—far, far more than any other city—and has added college graduates more quickly than any other major metro area. A city where once “defense contractors knew not to wear watches that outshone the admirals’” is now awash in Tesla dealerships and restaurants with prix fixe menus priced at $200 per person, before wine.

  Meritocracy directs this talent overwhelmingly to serve the private side of the interface between government regulation and the rich—to promote elite economic interests against the state. An entire industry now devotes itself to defending the elite’s income and wealth—to resisting, as a recent Citigroup brochure directed at the bank’s high-net-worth clients said, the “ways of expropriating wealth” favored by “organized societies” confronting “plutonomy.” This income defense industry overwhelms the state, sometimes literally. Donald Trump’s former top economic adviser Gary Cohn observes that “only morons pay the estate tax.” Cohn’s language may be crass, but it reports a simple fact: a systematic elite effort—including a media strategy, campaign contributions, lobbying, and tax planning—has effectively annihilated the estate tax. A combination of high exemptions and generous opportunities for tax planning means that in 2016, even before the 2017 tax reform further weakened the tax, fewer than fifty-three hundred families across the entire country paid any estate tax at all.

  The estate tax is extreme but not exceptional. The broader complex of lawyers, accountants, and bankers advising the rich on tax havens is sufficiently large to allow what the industry calls high-net-worth individuals (people with more than $30 million of investable assets) worldwide to move roughly $18 trillion of assets offshore. Overall, during the same decades in which the top 1 percent’s share of national income roughly doubled, the tax rates that it faced fell by perhaps a third. When Warren Buffett decries that he pays taxes at a lower rate than his secretary, he is reporting not an outlier but rather the limit case of a pervasive development. The rich have leveraged their rising economic power to remake the American tax system so that, taken altogether, a once-progressive regime has become effectively flat. Even when the rich are caught red-handed, they rarely get punished. The Obama Justice Department, for example, prosecuted effectively none of the financiers who caused the 2008 financial crisis, in part because prosecutors who would have handled the cases left for private-sector jobs.

  THE EMPOWERED ELITE

  When it created superordinate workers, meritocracy gave the elite a tool specifically built to render itself effectively ungovernable. This development, remarkably, evokes the Middle Ages. The crown and local nobles each owed their positions to commanding the personal fighting power of small numbers of heavily armed knights. Social norms, moreover, praised martial valor equally, regardless of whether it was displayed in service to a local lord or to a distant king, and praised Christian virtue entirely apart from distinctions based on secular political boundaries. These arrangements enabled private wealth to compete directly against the state for the essential determinants
of power and status, not only on material but also on moral terms. The direct competition left the crown weak and local lords strong.

  From medieval times through the mid-twentieth century, a series of interconnected developments directed the state and private elites onto separate tracks. The state monopolized physical force, while private elites dominated economic life, including by owning the capital—land, slaves, and industrial machines—on which top incomes depended. And the state dominated public virtue, which took on a civic or even patriotic cast, while elites emphasized private virtues grounded in an ethic of extravagant leisure. The division of labor enabled the state to achieve dominance in the public sphere, relatively free from direct private competition.

  Finally, meritocracy once again places the state and private elites into direct competition for the same basic asset (now the human capital of superordinate workers) and for the same basic virtues (now skill, effort, and industry). And just as feudal kings struggled to resist the private influence of local nobles who competed directly for the asset that underwrote their power and status, so the present-day American state struggles to resist the private influence of wealth that competes directly for superordinate labor.