amounted to less than 15%. The rising tide lifts some boats significantly more than others.
essential to break into the top management of TFSE-100 companies.
MISPERCEPTIONS Inequality is worse than most people think. Professor Michael Norton of Harvard Business School unearthed a case of mass delusion in a 2014 study5 in which he examines the public’s perception on executive pay. Prof Norton and coauthor Sorapop Kiatpongsan of the University of Chulalongkorn in Thailand first show that for most of the 1960s the typical American CEO earned about twenty times the money paid to the average Joe or Jane plugging away on the work floor or at the office. Today, the man or woman at the top hauls away anywhere between 274 and 354 times more than the median working stiff, depending on who supplies the numbers.
The Joseph Rowntree Foundation, which promotes social change through policy research, concluded in a 2013 study that more than half the intergenerational transmission of income occurs through education: “A failure to broaden access to cognitive skills is an important part of intergenerational inequality persisting across generations in highly unequal societies such as Britain.”
Now for the interesting bit. Asking some 55,000 people around the world how much they thought top executives make, most American respondents guessed that the CEO takes home around thirty times the amount paid out to average workers. They also believe a more appropriate level of compensation would hover around the 7-to-1 mark. “In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further removed from reality than those underestimates,” write Messrs Norton and Kiatpongsan. Emboldened by his findings, Prof Norton then went on to ask Americans how they would picture the ideal distribution of wealth throughout society. When the data came back it showed that most Americans actually seem to prefer a distinctly North European model in which few get left behind and fewer still may enjoy untold riches. In fact, 92% of respondents opted for the Swedish model of income distribution. Most people also seriously underestimate the amount of wealth amassed by those at the top. Prof Norton’s research found that respondents estimated that the top 20% of US households collectively owns about 59% of the nation’s wealth while in reality that quintile claims 84% of the marbles. In an ideal world, Americans think the top fifth of society should contend itself with about 32% of all wealth. “People drastically underestimate the disparities in wealth and income and their ideals are more equal than their estimates, which are already more equal than the actual levels. People from all walks of life – progressives and conservatives, rich and poor, all over the world – have a large degree of consensus in their ideals: everyone’s ideals are more equal than they actually think they are,” concludes Prof Norton. It gets even funnier when these findings are matched to voter behaviour. Polling firm Gallup consistently reports that a majority of Americans are in favour of a more even distribution of both
Christine Lagarde: Seeing the Light
wealth and income. However, few believe that the rich should be taxed any more than they already are. While the Pew Research Center found that 45% of registered Republican would like the government to intervene and ensure a more equitable distribution of the nation’s wealth, few, if any, of them dare come out and say so openly. SOCIAL IMMOBILITY One of the main reason why taxing the rich to the hilt is such an unpopular proposition is that quite a few people aspire to join the rarefied atmosphere where the haves-all dwell. Nobody fails to get touched by a well-told rags-toriches story. The chance of reaching those great heights of vast material well-being are, however, becoming ever slimmer. Social mobility in both the UK and the US has descended to historical lows. Figures from the OECD (Organisation for Economic Cooperation and Development) show that both Britain and the United States score particularly low when it comes to lifting people out of poverty. Of late, they seem much better equipped to tilt the demographic in the opposite direction. With education being the greatest of all equalisers, restricting access to colleges and universities contributes, more than anything else, to a reduction in upward social mobility. Whereas in the 1970s, every university student from the bottom quintile studied in the company of four peers from the top fifth of the income pyramid, by the 1990s that number of affluent students had grown to six. Perhaps mirroring the decline in the quality of state schools, aspiring students from lower income groups are about half as likely to gain entrance to universities as their peers with parents in the higher income brackets are. The privileged classes do protect their domain: fully 70% of the UK’s high court judges enjoyed an education at private schools that dispense knowledge to only 7% of the country’s overall student population. A private education is also
Former British Prime Minister Sir John Major was a lone voice in the wilderness of Tory politics when in 2013 he called it “truly shocking” that the well-heeled private school educated upper echelons of society still dominate public life. The Social Mobility and Child Poverty Commission, charged with monitoring the government’s progress on both issues, discovered that lowability children from affluent households already after their first few years in school outperform high-ability kids from poor families. However, change is not impossible. Not ten years ago, London state schools were counted amongst the worst in the country, producing mostly functional illiterates. Today, after a sustained effort by council administrators, teachers, and parents, these schools have become veritable temples of learning and breeding grounds for success. EQUALITY IN MODERATION While it is satisfying to think that all are equal and, thus, nobody is inherently better than their peers; too much equality is not necessarily beneficial. Experiments at imposing equality top-down have mostly resulted in bland – and repressive – societies that stifle human ingenuity and discourage both innovation and initiative. The drab German Democratic Republic – now thankfully extinct – comes to mind as does the collective madness known as the Cultural Revolution that ruthlessly stamped out any and all bourgeois tendencies in China – and reaffirmed Chairman Mao’s power – at a cost of an estimated two to three million lives. Writing for the Cato Institute, a libertarian thinktank in Washington DC, researcher Swaminathan Aiyar warns that excessive equality is as dangerous – if not more so – than high levels of inequality. Mr Aiyar parades a host of (ex-) countries that elevated egalitarianism to almost religious-like status and saw their people leave in droves. Thousands of Cubans braved the sharkinfested water of the Florida Straits on makeshift rafts to try their luck in the land of the unequal, coincidentally also home of the brave. Thousands suffered a similar ordeal fleeing Mao Zedong’s China to reach Hong Kong – one of the most unequal places in the world. In between both extremes are a few countries that have managed to avoid the polarisation of society. For the best chance to advance in life, look at Denmark which now generates more 161