Free Markets and Meritocracy (1 Viewer)

[Silver Persian]

In response to certain statements made by certain people, here is a new thread.

In it, we will discuss the claim that is occasionally made that free markets promote meritocracy. Individuals who work hard, act responsibly and make good choices, from this perspective, will be rewarded with higher incomes. Alternatively, individuals who are lazy, irresponsible and foolish will tend towards the bottom end of the income distribution.

Here are some questions to consider:
-To what extent are we responsible for our position in the distribution of income?
-If you believe that a degree of luck/chance influences the position we occupy in the distribution of income, is it acceptable for the government ro modify this distribution to compensate for bad luck?
-Is economic productivity the most efficient/most ethically defensible way to determine the distribution of income?


Discuss!

 

[Silver Persian]

Shit thread. Lock n ban

Your contribution is highly valued. Now please join the other airheads in Non-School - the adults are speaking.

To zimmerman: So would you , hypothetically, support the redistribution of income to compensate for luck, if it could be achieved without the creation of overblown and inefficient government bureaucracies?

 

[Silver Persian]

Purely hypothetically, yes. But the idea is impossible.

Luck is an important part of the market based system. Entrepreneurs work hard and create things that benefit society, because there is a possibility that they will be lucky, and their ideas will take off and they will receive great rewards. Some entrepreneurs fail, despite being hard working and talented.

If everyone is rewarded 'fairly' there is no incentive to work to be the lucky one. I don't see any way of assessing who is hard working without some sort of expensive bureaucracy to judge this. Do you?

I suppose, practically speaking, there would be no convincing way (at least that I'm aware of) to quantify how much of one's success is determined by luck, and how much is determined by choice or hard work. And certainly no way that would not involve the creation of giant bureacracies, I agree. We might even follow Rawls, and argue that the idea of the "free choice" as the fair way to distribute income is problematic - why is it that some people chooise to work hard and act responsibly. Is it (at least partially) because they have grown up in families that promote this work ethic? And if yes, why should people be rewarded for happening to be born into the right families?

Would it be fair to say that you believe the free market distributes income efficiently, but nor (wholly) fairly?

 

[JonathanM]

We are largely responsible for our individual incomes. There is a matter of chance, of course, which can determine your place, whether you are born into a slum in Somalia or into the Pratt family in Australia as one example of chance. It is quite simple though, as far as I'm concerned, if you are able bodied and possess a high school education or any equivalent, your position in the distribution of income is totally up to you.

 

[Lentern]

I fear if I get too involved in this thread I'll start talking about single mums and soccer boots so i'll just say life isn't fair, governments have the ability to make it a little fairer.

 

[Freedom_]

Anyone with an iota of intelligence will understand that the governments job IS NOT TO INTERFERE WITH THE MARKET.
Many speak of “separation of Church and State”, but there is another theme classical liberals have advocated and that is “separation of the economy from the State”

 

[KFunk]

Anyone with an iota of intelligence will understand that the governments job IS NOT TO INTERFERE WITH THE MARKET.
Many speak of “separation of Church and State”, but there is another theme classical liberals have advocated and that is “separation of the economy from the State”

Decision makers, however, attempt to manage these clouds of sociality according to input/output matrices, following a logic which implies that their elements are commensurable and that the whole is determinable. They allocate our lives for the growth of power. In matters of social justice and of scientific truth alike, the legitimation of that power is based on its optimizing the system’s performance – efficiency. The application of this criterion to all of our games necessarily entails a certain level of terror, whether soft or hard: be operational (that is, commensurable) or disappear.

- Lyotard (1984)

 

[KFunk]

Many speak of “separation of Church and State”, but there is another theme classical liberals have advocated and that is “separation of the economy from the State”

While I'm being lazy and posting quotations I also remembered a quote from Habermas on Hegel in which he recites Hegel's claim that in the schism of the statewe have suffered a separation from certain communal ethical dimensions (just as with the split of the church):

Whereas the [ancient ideal of the state] does not get beyond ideas of the substantial ethical dimension, and conceives of the state as an enlarged family relationship, individualistic natural right does not even raise itself up to the idea of the ethical and identifies the emergency state and rational state with the private-law relationships proper to civil society. The peculiar character of the modern state first comes into view, however, when the principle of civil society is conceived as a principle of marketlike - and that means nonstatelike - association.

 

[Graney]

-If you believe that a degree of luck/chance influences the position we occupy in the distribution of income, is it acceptable for the government ro modify this distribution to compensate for bad luck?

Biological and environmental advantages at birth are an important and unfairly distributed explanatory factor in accounting for the ability of individuals to achieve varying levels of merit.

Putting aside this factor for a moment, and assuming individuals are empowered with at least a modicum of autonomy to make free decisions to effect positive changes in their lives, it is my belief that in a modern western economy an able bodied individual wisely investing and working throughout their life, cannot fail to accumulate wealth and succeed. There will be small failures and dips along the way in any one's lifetime, but if you've invested yourself intelligently and for a sustained period, you cannot fail to accumulate ample wealth in the modern Australian economy.

The meritocracy won't be perfectly ordered. The most meritous won't always achieve exactly the most. Corruption and nepotism will always exist. However it will be broadly ordered correctly, and all who are capable, work hard and make sound decisions will profit.

Also, if the government was to redistribute wealth to compensate those affected by bad luck, the taxation imposed to obtain this redistribution will impact on the viability of investments made by those who have to pay for it. It is possible the increased taxation may erode the viability of other businesses in the market, in turn causing a downturn and bad luck for others in the market.

Compensating for bad luck will always have the consequence of serving to subsidize mediocrity.

-Is economic productivity the most efficient/most ethically defensible way to determine the distribution of income?

I can't think of any objection to this distribution.

The appropriate distribution of income can only be fairly determined and set by what employers are prepared to pay and employees will accept in negotiation.

We might even follow Rawls, and argue that the idea of the "free choice" as the fair way to distribute income is problematic - why is it that some people chooise to work hard and act responsibly. Is it (at least partially) because they have grown up in families that promote this work ethic? And if yes, why should people be rewarded for happening to be born into the right families?

This is without doubt the case.

The largest determinant of the person you will become is largely determined by your parents position, particularly with regards to the most powerful of upward motivators, education.

But as zimmerman says, I don't see why a distinction should be made that you're less entitled to that obtained by innate gifts than that supposedly earned by hard work and the application of a dedicated free will. The two are inseparable in origin and effect.

The injustice of biological and environmental advantage at birth is irreconcilable, we can only best help those disadvantaged at birth by providing them with ample freedom to pursue any means towards upward mobility if they choose to so apply themselves, and liberalizing labor laws to facilitate the creation of a diverse range of unskilled jobs to enable them to fit wherever they naturally fall within the social hierarchy. This is compassionate.

They should be rewarded, not because they were born into the right family, but because by rewarding the most capable, it increases economic productivity, which benefits workers from all backgrounds. It may not be perfectly fair that they have obtained their greater wealth through the use of born attributes, but by compensating them when they exercise their born abilities for the increase of economic productivity, a utilitarian benefit is achieved.

 

[Silver Persian]

I wish I was committed enough to write chunks of text like Graney, rather than nitpicking, never making substantive contributions and mostly asking questions

The meritocracy won't be perfectly ordered. The most meritous won't always achieve exactly the most. Corruption and nepotism will always exist. However it will be broadly ordered correctly, and all who are capable, work hard and make sound decisions will profit.

I wonder what kind of evidence there would be to support this kind of claim thought. I think someone posted an article a while ago that suggested those in the upper echelon of the income distribution had a higher IQ than their counterparts several decades ago - suggesting that markets were separating the meritorious from the less meritorious...

Compensating for bad luck will always have the consequence of serving to subsidize mediocrity

But if mediocrity is not someone's fault, then surely it is fair to compensate them for this? (Note the use of the word fair, rather than efficient.)

But as zimmerman says, I don't see why a distinction should be made that you're less entitled to that obtained by innate gifts than that supposedly earned by hard work and the application of a dedicated free will. The two are inseparable in origin and effect.

Well, the distinction between what we're entitled to on the basis of innate gifts vs what we've worked for would be similar to the kind of distinction that is often made between aristocratic and capitalist-democratic societies. If we gain benefits from something that we have done nothing to earn, it seems similar to the privilege flowing to aristocrats on the basis of birth. The distinction would hinge upon some notion of desert.

I agree that, in practice, it is going to be impossible to determine that 30% of an individual's income was gained through choice, and 70% luck. But it is still important to recognise an analytical distinction between them, particularly within the context of welfare state politics. If we believe that income is wholly determined by choice, then poverty reflects personal failure. If, alternatively, the income distribution is understood to reflect a complex mixture of personal choice, location in social hierarchy, biological makeup, family socialisation etc, then we have some ethical basis for believing that a redistribution of income through the WS would be more in line with some notion of desert.

They should be rewarded, not because they were born into the right family, but because by rewarding the most capable, it increases economic productivity, which benefits workers from all backgrounds. It may not be perfectly fair that they have obtained their greater wealth through the use of born attributes, but by compensating them when they exercise their born abilities for the increase of economic productivity, a utilitarian benefit is achieved.

So would you broadly agree with zimmerman that capitalist markets distribute income efficiently, but not fairly (or perfectly fairly)?

 

[KFunk]

So would you broadly agree with zimmerman that capitalist markets distribute income efficiently, but not fairly (or perfectly fairly)?

The problem of whether we are justified in seeking efficiency at the expense of equity tends to be the underlying issue in these debates. Some free marketeers deny that it is an issue while others argue that there will be greater equity issues in alternative systems. I disagree with both.

Also, see the attached article if you seek food for thought (I came across it recently and thought it may be of interest).

 

[kami]

I think the notion of the free market as independent and functional is a delusion, personally. While the market has been behind pushes in technology and so on, there's always been governmental bodies involved in the push for technologies (creating markets which are 'free'). The free market, completely unbalanced, also does not work because not everyone has an innate access so as to produce, consume and otherwise participate in the market properly. Inequity will always run rife and you'll get a form of oligarchy, not a meritocracy.

That all said, I'm not a big fan of too much government intervention. It should help to shape the free market forces, it shouldn't block them.

 

[Graney]

I wonder what kind of evidence there would be to support this kind of claim thought. I think someone posted an article a while ago that suggested those in the upper echelon of the income distribution had a higher IQ than their counterparts several decades ago - suggesting that markets were separating the meritorious from the less meritorious...

So the meritocracy is better than I expected? I can live with that.

But if mediocrity is not someone's fault, then surely it is fair to compensate them for this? (Note the use of the word fair, rather than efficient.)

Equity. Beyond fulfilling a minimum standard of living, why is it desirable, especially given the presumption the pursuit of equity through government intervention will lead to less efficiency?

Well, the distinction between what we're entitled to on the basis of innate gifts vs what we've worked for would be similar to the kind of distinction that is often made between aristocratic and capitalist-democratic societies. If we gain benefits from something that we have done nothing to earn, it seems similar to the privilege flowing to aristocrats on the basis of birth. The distinction would hinge upon some notion of desert.

But you're only able and motivated to do that hard work due to your genetic gifts and advantaged background. Or perhaps you had a poor background, but this stimulated you in such a way that you were motivated to rise above your background and achieve more than somebody from a more privileged background would have been. Being from a poor background gave you a subtle advantage in psychology that motivated you to hard work. In either case, advantage is only had through factors beyond your control, could a man who was so motivated and pushed to hard work have chosen to do any less?

The cause of your ability to do hard work comes only due to your unearned advantages. No hard work can be done without the existence of advantage in a range of ways.

And so, the gifts of fortune are the same as hard work. You're equally entitled (or not, as the case may be) to both. Hard work requires some suffering, but there is nobility attached to this and it has it's own rewards, in meaning and fulfillment.

 

[Kalashnikov47]

One of the best example of "meritocracy" in capitalism:

The executives of GM, who had been making series of foolish decisions, are directly responsible for the collapse of the once almight GM empire. However, after GM filed bankrupcy, they can still live their lives with luxury cars and long-island mansions because the bankrupcy of GM (as a separate legal entity from its owners) does not affect their own asset.

On the other hand, those workers who worked like dogs at the pleasure of their boss for a reward to feed their families, are the ones who suffer the most as a result of GM's collapse. Yet, they have nothing to do with GM's trouble.


How fair is capitalist meritocracy?

 

[yoddle]

Do you have any evidence for these claims? Its hard to prove one way or the other because we don't have any examples of fully free markets.

The closest examples (only in terms of economic freedom) at the moment would be the Hong Kong SAR and Singapore. Both are extremely prosperous, and have risen rapidly to western living standards while most of their neighbors in Asia have lagged behind in relative poverty.

Perhaps the best example of the positive power of free markets is the United States. It was founded on the principals of limited government, low taxation, and free markets; and it rapidly rose to become the richest most powerful country in the world.

I don't know a huge deal about economics, but I think there's a fair chance that Singapore and the Hong Kong SAR are dubious examples, because their economies lack alot of the geographical complexities of most other economies. Like the fact that they have no arable land, mines or forestry sector. Thus they depend on the natural resources of other nations and the effect of an almost totally free market on a real economy and the environment that allows it to exist cannot be properly measured.

Also, you point to the United States as a free market success story, but that all depends on how one measures success. Whilst the US has grown richer and more powerful over time, American people have grown lonelier, less happy and many do not know a person that they feel genuinely close to. In other words, the overall American condition has deteriorated as American GDP has increased.
- I have read the research papers and articles about the above assertions, but cbf actually referencing and linking them, if you don't believe me then just look it up yourself.

Also, I have seen a graph in my economics class that shows as GDP goes up like this: /, world happiness (have no idea how that is measured), goes like this: __
So, if money makes you truly happy, then that's all well and fine. But it doesn't.

But economic growth HAS given us (that being the First and Second worlds) better medical practices, longer life expectancies etc, so its a hard debate.

 

[Graney]

One of the best example of "meritocracy" in capitalism:

The executives of GM, who had been making series of foolish decisions, are directly responsible for the collapse of the once almight GM empire. However, after GM filed bankrupcy, they can still live their lives with luxury cars and long-island mansions because the bankrupcy of GM (as a separate legal entity from its owners) does not affect their own asset.

On the other hand, those workers who worked like dogs at the pleasure of their boss for a reward to feed their families, are the ones who suffer the most as a result of GM's collapse. Yet, they have nothing to do with GM's trouble.


How fair is capitalist meritocracy?

GM is an example of how governments will continue to fund inefficient industries long after they should have collapsed. In anything like a free market GM would have collapsed long ago. Which it should have been allowed to do.

I'd argue GM's management made broadly appropriate decisions for their market at the time, the US car industry, having to operate within that country's current highly unionized labor market will never be competitive with the asian car makers on a budget platform, so the best option was to invest in large cars and SUVS. They've gone bankrupt of course, but the demise would have been quicker under any other plan.

You've got it backwards, GM is a perfect example of government intervention subsidising an unsustainable industry and preventing the true meritocracy from asserting itself.

 

[yoddle]

and who do you propose was going to buy these SUVs and large cars?

 

[Graney]

The people who did buy them during boom times? SUVs weren't unpopular. Hummer was hugely profitable at one point.

I'm not saying it was a sustainable model, they were simply doing the best they could. The US car industry can't work with a budget small car platform. The problem was that the government ever gave them money to force their continued, unsustainable operation at all.

As soon as GM lost profitability and could no longer obtain private finance, none of the cars should have been built

Government intervention was the problem. Allow the meritocracy to assert itself and so many billions would have been saved from the car industry and other industries could have flourished in their place.

 

[yoddle]

But the US government couldn't do NOTHING to stop the loss of however many jobs have been lost in the collapse, as well as the 2500 dealership closures. They had to do something, out of political necessity and reactionary compassion (mostly the former, i would cynically say).

So for your hypothetical best course of action to work, the poll-going public would basically have to have nil concern for employment, which isn't going to happen as long as humans have jobs.

So basically what 'should' have happened is a hypothetical situation conceived in la-la land.

 

[Graney]

The government doesn't always have to do what's popular, they can choose to do what's right. Much like the workchoices laws.

What would this man have done?