However, while correct, this argument is only part of the story. Individuals are not born into a vacuum. The socio-economic environment they operate in puts serious restrictions on what they can do. Or even on what they wantto do. Your environment can make you give up certain things even without trying. For example, many academically talented British working-class children do not even try to go to universities because universities are ‘not for them’. This attitude is slowly changing, but I still remember seeing a BBC documentary in the late 1980s in which an old miner and his wife were criticizing one of their sons, who had gone to a university and become a teacher, as a ‘class traitor’.
While it is silly to blame everything on the socio-economic environment, it is equally unacceptable to believe that people can achieve anything if they only ‘believe in themselves’ and try hard enough, as Hollywood movies love to tell you. Equality of opportunity is meaningless for those who do not have the capabilities to take advantage of it.
Today, no country deliberately keeps poor children from going to school, but many children in poor countries cannot go to school because they do not have the money to pay for the tuition. Moreover, even in countries with free public education, poor children are bound to perform poorly in school, whatever their innate ability may be. Some of them go hungry at home and also skip lunch at school. This makes it impossible for them to concentrate, with predictable results for their academic performance. In extreme cases, their intellectual development may have already been stunted because of a lack of food in their early years. These kids may also suffer more frequently from illness, which makes them skip school more often. If their parents are illiterate and/or have to work long hours, children will have no one to help them with their homework, while middle-class children will be helped by their parents and rich kids may have private tutors. Helped or not, they may not even have enough time for homework, if they have to take care of younger siblings or tend the family goats.
Given all this, as far as we accept that we should not punish children for having poor parents, we should take action to ensure that all children have some minimum amounts of food, healthcare and help with their homework. Much of this can be provided through public policy, as happens in some countries – free school lunches, vaccinations, basic health checks and some help with homework after school by teachers or tutors hired by the school. However, some of this still needs to be provided at home. Schools can provide only so much.
This means that there has to be some minimum equality of outcome in terms of parental income, if poor children are to have anything approaching a fair chance. Without this, even free schooling, free school meals, free vaccinations, and so on, cannot provide real equality of opportunity for children.
Even in adult life, there has to be some equality of outcome. It is well known that, once someone has been unemployed for a long time, it becomes extremely difficult for that person to get back into the labour market. But whether someone loses her job is not entirely determined by the person’s ‘worth’. For example, many people lose their jobs because they chose to join an industry that looked like a good prospect when they first started but since has been hit hard by a sudden increase in foreign competition. Few American steelworkers or British shipbuilding workers who joined their industries in the 1960s, or for that matter anyone else, could have predicted that by the early 1990s their industries would be virtually wiped out by Japanese and Korean competition. Is it really fair that these people have to suffer disproportionately and be consigned to the scrapheap of history?
Of course, in an idealized free market, this should not be a problem because the American steelworkers and the British shipbuilders can get jobs in expanding industries. But how many former American steelworkers do you know who have become computer engineers or former British shipbuilders who have turned themselves into investment bankers? Such conversion rarely, if ever, happens.
A more equitable approach would have been to help the displaced workers find a new career through decent unemployment benefits, health insurance even when out of a job, retraining schemes and help with job searches, as they do particularly well in Scandinavian countries. As I discuss elsewhere in the book (see Thing 21), this can also be a more productive approach for the economy as a whole.
Yes, in theory, a shoeshine boy from a poor provincial town in Peru can go to Stanford and do a PhD, as the former Peruvian President Alejandro Toledo has done, but for one Toledo we have millions of Peruvian children who did not even make it to high school. Of course, we could argue that all those millions of poor Peruvian children are lazy good-for-nothings, since Mr Toledo has proven that they too could have gone to Stanford if they had tried hard enough. But I think it is much more plausible to say that Mr Toledo is the exception. Without some equality of outcome (of parental income), poor people cannot take full advantage of equality of opportunity.
Indeed, international comparison of social mobility corroborates this reasoning. According to a careful study by a group of researchers in Scandinavia and the UK, the Scandinavian countries have higher social mobility than the UK, which in turn has higher mobility than the US.[2] It is no coincidence that the stronger the welfare state, the higher the mobility. Particularly in the case of the US, the fact that low overall mobility is largely accounted for by low mobility at the bottom suggests that it is the lack of a basic income guarantee that is preventing poor kids from making use of the equality of opportunity.
Excessive equalization of outcomes is harmful, although what exactly is excessive is debatable. Nevertheless, equality of opportunity is not enough. Unless we create an environment where everyone is guaranteed some minimum capabilities through some guarantee of minimum income, education and healthcare, we cannot say that we have fair competition. When some people have to run a 100 metre race with sandbags on their legs, the fact that no one is allowed to have a head start does not make the race fair. Equality of opportunity is absolutely necessary but not sufficient in building a genuinely fair and efficient society.
Thing 21
Big government makes people more open to change
Big government is bad for the economy. The welfare state has emerged because of the desire by the poor to have an easier life by making the rich pay for the costs of adjustments that are constantly demanded by market forces. When the rich are taxed to pay for unemployment insurance, healthcare and other welfare measures for the poor, this not only makes the poor lazy and deprives the rich of an incentive to create wealth, it also makes the economy less dynamic. With the protection of the welfare state, people do not feel the need to adjust to new market realities, thereby delaying the changes in their professions and working patterns that are needed for dynamic economic adjustments. We don’t even have to invoke the failures of the communist economies. Just look at the lack of dynamism in Europe with its bloated welfare state, compared to the vitality of the US.
A well-designed welfare state can actually encourage people to take chances with their jobs and be more, not less, open to changes. This is one reason why there is less demand for trade protectionism in Europe than in the US. Europeans know that, even if their industries shut down due to foreign competition, they will be able to protect their living standards (through unemployment benefits) and get re-trained for another job (with government subsidies), whereas Americans know that losing their current jobs may mean a huge fall in their living standards and may even be the end of their productive lives. This is why the European countries with the biggest welfare states, such as Sweden, Norway and Finland, were able to grow faster than, or at least as fast as, the US, even during the post-1990 ‘American Renaissance’.
2
M. Jäntti et al., ‘American exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the United Kingdom and the United States’, The Warwick Economic Research Paper Series, Department of Economics, University of Warwick, October 2005.