Meritocracy and economic inequality are fractious allies. However, while the gap between the rich and the poor has seen a significant increase in academic, societal, and political interest since the global financial crisis of 2008/09, less attention has been paid to the paradigm behind it that legitimises inequality: the idea of meritocracy (for two exceptions, see Markovits 2019 and Sandel 2020). Analysing meritocracy means becoming aware of the veil that lies over the tremendous canyon between the haves and have-nots, shrouding the rise in economic inequality within liberal democracies since the 1980s. If one wants to understand why economic inequality was not problematized, let alone addressed, it is of utmost importance to understand how both meritocracy and economic inequality have been framed in this particular era, commonly known as the “neoliberal”.

According to the neoliberal view, global competition, driven by increased capital mobility and technological advances that have shrunk transport and transaction costs, can be a beneficial constraint on national economic politics and policies. This global competition fosters a “race to the bottom” in tax policies. Less taxation and lower wages can encourage more investment, which in turn drives more economic growth; and economic growth is, so to say, the holy grail of neoliberalism. From the very beginning of neoliberal thinking, it was clear “that the system would involve some inequality of income” (Robbins, 1937: 262).  In order to protect the economy from the political backlash that this rise in inequality might produce, economic policy and economic inequality were placed outside the political sphere, “encased” and “protected” against democratic interference (Slobodian, 2019).

The argument that legitimized this move was: regressive policies and ever lower levels of taxes, especially for the rich, would not only benefit the upper classes; given enough time, they would also “trickle down” to the rest in society. Therefore, even if the regressive model might initially seem to increase inequalities, it eventually reduces them. As Joseph Stiglitz indicates, “it came to be believed that ‘a rising tide lifts all boats’” (Stiglitz, 2015). Furthermore, and in accordance with the theory of marginal productivity [1], compensation for labor reflects different individuals’ contributions to society; thus, whoever would work hard – so was and is the generally believed common sense – could make their way from a dishwasher to a millionaire.

In theory, these considerations may have sounded convincing, but history has proven them wrong. The trickle-down notion could not pass the reality test. David Hope and Julian Limberg (2020) of the London School of Economics analyzed 18 OECD countries over five decades, asking whether major tax cuts for the wealthiest in society have had any economic effects. They found that every major tax cut reform has led to a rise in income inequality, yet the effect on economic performance was negligible; the estimated effects in regard to growth were “statistically indistinguishable from zero” (Hope and Limberg, 2020: 5). Coming back to Stiglitz:

“Contrary to the rising-tide-hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. … The trickle-down notion – along with its theoretical justification, marginal productivity theory – needs urgent rethinking.” (Stiglitz, 2015: 134)

So, let us answer Stiglitz´s call and rethink – but focusing on another aspect, namely the idea of the meritocratic, performance-based society. While the economics of trickle-down have been subjected to substantial criticism, many still cling to the normative narrative that legitimizes it. If we look at economic inequalities, however, we quickly come to recognize the myth created around merit (Solga, 2015). According to Daniel Markovits, meritocracy is not the solution to the problem of inequality, but it is rather its root (Markovits, 2019). One main reason lies in the creed of purely personal, individual self-determination that conceals structural considerations, disadvantages, and discrimination.

Allow me to consider existing inequalities, taking Germany as an example. Income inequalities have grown over the past few decades (Grabka et al., 2019), but the most stunning rise in inequality can be observed in wealth. Since, according to a recent survey by the Cluster of Excellence “Politics of Inequality”, most people believe income inequalities to be higher than wealth inequality (Bellani et al., 2021), I would like to offer some numbers: When speaking of income, the richest 10% have 23.3% of the total income, while the poorer 50% of Germans together receive 30% (bpb, 2020). When it comes to wealth, however, the top 10% of the population own 67.3% of the total private net wealth, while the poorer half of the population own 0.5% (Schröder et al., 2020: 319 and Bundesregierung, 2021: 74).

In 2018, Der Spiegel’s headline featured the 45 richest families in Germany, who had as much wealth as the poorer half of the German population – stunning, to be sure. Since then, however, the German Institute for Economic Research (DIW) has closed data gaps regarding very large fortunes, showing that the wealth concentration of the upper percent is in fact more extreme than earlier thought (35% instead of 22%), while the poorer half own less than presumed (approx. 0.5% instead of 1.4%) (Schröder et al., 2020: 319 and Bundesregierung, 2021: 74). Since then and despite the overall economic downturn due to Corona, the wealth of the richest families has multiplied further. In consequence, in 2021 two families own more than the poorer half of the German population. The calculation is easily made: According to the Federal Statistical Office, total German net wealth amounts to 13 trillion Euros (DGB, 2021: 67), 0.5% of which makes 65 billion, and thus less than the fortunes of the two richest families in Germany: 38.4 billion Euros for Beate Heister and Karl Albrecht Junior and 33.2 billion Euros for Klaus Michael Kühne. Taken together, these heirs possess 71.6 billion Euros and thus more than do 41 million people in Germany. How could this abstruse inequality be, even tentatively, countered with meritocratic means?

The overall picture is grotesque: While we are talking about a meritocratic society where ambitions and individual performance are decisive and inequalities are justified based on this principle, more than half of all wealth is not earned by one's own hands but it is inherited. For too long have we envisaged society from a poverty perspective (Schürz, 2020), hence overly focused on income, and indulged in the narrative that higher investments in education are needed. But the factor that threatens to unhinge our democracy is wealth inequality.

If we rethink how we have framed economic policy and inequality over the past few decades, we should also reflect upon the narrative of meritocracy. Instead of justifying the status quo, we could and should decide to face up to blatant wealth inequality, face the challenge, and draw attention towards possible solutions for tackling inequality in a common social endeavor. The solutions to the problem lie in our hands. This much is clear: More merit is definitely not the key to success.

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Footnotes

[1] “[M]arginal productivity theory maintains that, due to competition, everyone participating in the production process earns a remuneration equal to her or his marginal productivity. This theory associates higher incomes with a greater contribution to society” (Stiglitz, 2015: 6).

Sources

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Bundesregierung. 2021. Lebenslagen in Deutschland. Der 6. Armuts- und Reichtumsbericht der Bundesregierung. Link.

Bundeszentrale für politische Bildung (bpb). 2020. Einkommensverteilung. Link.

Deutscher Gewerkschaftsbund (DGB). 2021. Verteilungsbericht 2021: Ungleichheit in Zeiten von Corona, 23 January. Link.

Grabka, Markus, Jan Goebel, and Stefan Liebig. 2019. „Wiederanstieg der Einkommensungleichheit – aber auch deutlich steigende Realeinkommen“, DIW, Weekly Report, 19. Link.

Hope, David, and Julian Limberg. 2020. “The Economic Consequences of Major Tax Cuts for the Rich”, London School of Economics, Working Paper, 55, December. Link.

Markovits, Daniel. 2019. The Meritocracy Trap. How America´s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite. New York: Penguin Press.

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Schröder, Carsten, Charolotte Bartels, Konstantin Göbler, Markus M. Grabka, and Johannes König. 2020. “Millionaires under the Microscope: Data Gap on Top Wealth Holders Closed; Wealth Concentration Higher than Presumed”, DIW, Weekly Report, 30+31. Link.

Schürz, Martin. 2020. Überreichtum. Sonderausgabe, Schriftenreihe Band 10552, Bonn: Bundeszentrale für politische Bildung.

Slobodian, Quinn. 2019. Globalists. The End of Empire and the Birth of Neoliberalism, Cambridge y London: Harvard University Press.

Solga, Heike. 2015. “The social investment state and the myth of meritocracy”, in: Combating Inequality: The Global North and South, edited by Alexander Gallas, Hansjörg Herr, Frank Hoffer, and Christoph Scherrer, London: Routledge, 199–211.

Stiglitz, Joseph. 2015. “Inequality and Economic Growth”, The Political Quarterly, 86(1), 134–155. Link (with other pages, 1–18). Link.

Martyna B. Linartas is a doctoral researcher with the SCRIPTS Program at Freie Universität Berlin. The Topic of her PhD Thesis is "Wealth, the elites, and inheritance: Explaining Persistent and Rising Wealth Inequality in OECD states: the Cases of Germany and Mexico".