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Elite schools, the inequality delivered by markets and a reformation of economics

Ben Paul
Ben Paul • 8 min read
Elite schools, the inequality delivered by markets and a reformation of economics
SINGAPORE (June 4): Raffles Institution wants to debunk the notion that it is an “elite school”, amid concerns that its student population is becoming less diverse, according to news reports this past week. Among other things, it is trying to raise aw
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SINGAPORE (June 4): Raffles Institution wants to debunk the notion that it is an “elite school”, amid concerns that its student population is becoming less diverse, according to news reports this past week. Among other things, it is trying to raise awareness of financial assistance schemes to ensure that able students from low-income families are not deterred from applying for admission. Even so, students currently enrolled at the school — which I attended in the 1980s — are not representative of society. Only about half of them live in public housing, while some four-fifths of all Singaporeans live in such housing, according to the news reports.

RI should not waste its time trying to change the entrenched perception that it is an “elite school”. Instead, it should focus on impressing upon its students that they have been enormously lucky in life. They are lucky for being academically inclined, and having parents they can rely on for money and social connections. They are also lucky for living in a country where academic success easily leads to well-paid jobs. And, they are lucky for being born at a time when it is widely accepted that market competition ought to be a key organising principle for society. RI should also let its students know that they are no more or less deserving of their luck than somebody who wins the lottery. In the end, what they do with their good fortune is what really matters.

The media attention that RI received was part of a wider national conversation sparked earlier this year by a social studies guidebook that provided examples of the supposed behaviour and preferences of people of high and low socioeconomic status. For instance, people of high SES use “formal English” in daily conversation and eat at expensive restaurants, while people of low SES communicate in “Singlish” or Chinese dialects and eat at hawker centres, according to the guidebook. Many Singaporeans were naturally appalled by the sweeping generalisations. And, the incident now seems to have spurred a debate about inequality, and raised questions about whether Singapore’s vaunted social mobility is in decline.

Singapore is not the only country grappling with this problem. Inequality around the world has been linked to liberal market-oriented economic policies that have been pursued over the past few decades. By some accounts, the turning point came in the 1970s, when the ideas of economists such as Friedrich Hayek and Milton Friedman were adopted, as the influence of John Maynard Keynes waned in the face of stagflation.

Since then, cosseted industries have been deregulated and exposed to more competition, free trade has been promoted, cross-border flows of capital and labour have been encouraged, and governments have cut taxes and reduced their participation in the economy. This spurred economic activity and created wealth, but the gains were not distributed equally. The inequality that came about was cast as evidence of the market working, delivering to everyone exactly what they deserved. People who got rich were led to believe they acquired their wealth through merit, while people who were left behind had nobody to blame but themselves.

This market-oriented system had some powerful proponents. Among them was the late Margaret Thatcher, the former prime minister of Britain, who is said to have been an admirer of Hayek’s work. In 1990, in her final appearance as prime minister in the House of Commons, she was accused by Liberal Democrat MP Simon Hughes of presiding over a worsening of inequality during her time in office. She responded by saying: “People on all levels of income are better off than they were in 1979. The honourable gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way, one will never create the wealth for better social services, as we have.”

Brewing reformation?

Nearly two decades on, the combination of politics and economics that has come to be known as “neoliberalism” is said by its critics to have been the cause of the global financial crisis and divisions in society that led to Brexit as well as the election of Donald Trump as president of the US. With a growing sense that neoliberalism is failing, a search for an alternative orthodoxy in economics appears to have started.

In December last year, Rethinking Economics, a group that calls itself an international network of students, academics and professionals, banded together with a think tank called New Weather Institute to declare that the field of economics is not doing enough to provide insights that would help solve the big issues of our times. One reason is that the neoclassical perspective has come to dominate teaching, research and public debate. “Mainstream economics appears to have become incapable of self-correcting, developing more as a faith than a science”, they stated.

To drive home their point, these activists emulated Martin Luther, the monk who supposedly nailed his “Ninety-five Theses” to the door of Castle Church in Wittenberg, Germany almost exactly 500 years ago, in an act that started the Protestant Reformation. Led by one Steve Keen, who was dressed in a monk’s habit and brandishing a toy hammer, the activists turned up at the London School of Economics and Political Science to “nail” their own 33 theses to its door. (They actually attached it to the door with some Blu Tack.)

“We propose these theses as a challenge to the unhealthy intellectual monopoly of mainstream economics. These are examples of the flaws in mainstream theories, of the insights that alternative perspectives have to offer, and of the ways in which a more pluralist approach can help economics to become both more effective and more democratic,” they stated.

Three of the 33 theses were related to the issue of inequality. The first states: “In a market economy, people with the same abilities, preferences and endowments do not tend to end up with the same level of wealth, subject only to some random variation. The effects of small differences in luck or circumstances can drive vastly different outcomes for similar people.”

The next reads: “Markets often show a tendency towards increasing inequality. In turn, unequal societies fare worse across a range of social welfare indicators. Mainstream economic theory could do much better in understanding how and why this happens, and how it may be avoided.” And the third one says: “The proposition that as a country gets richer, inequality must inevitably rise before it falls, has been shown to be false. Any combination of GDP growth and inequality is possible.”

More interventionism?

In the meantime, governments might find themselves having to become more interventionist to counter the tendency for liberal market-oriented economies to deliver greater inequality. The strong interest in Thomas Piketty’s book Capital in the Twenty-First Century four years ago is perhaps an indication of where things are headed. In particular, his idea of a progressive annual tax on capital rather than income garnered a lot of attention.

Piketty had some detractors, though. Bill Gates, founder of Microsoft, in a response to the book, pointed out that significant wealth in the US has not lasted beyond a few generations. “Take a look at the Forbes 400 list of the wealthiest Americans,” he said in a blog in 2014. “About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In [the US], that old money is long gone — through instability, inflation, taxes, philanthropy and spending.”

Yet, Gates acknowledged the corrosive impact that inequality can have, and went on to suggest that governments should tax consumption instead of capital. “Imagine three types of wealthy people,” he said, in the blog. “One guy is putting his capital into building his business. Then, there’s a woman who’s giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it’s true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third.”

As economies continue changing, and new concerns in society emerge, this debate is probably going to rage on for some time. Students at RI should perhaps monitor and engage in this debate. Understanding the causes of inequality and developing ideas to solve the problem would make them exactly the leaders of tomorrow that we need. It might also help make the label “elite school” less of a pejorative term.

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