Since populist nationalists want to reaffirm the majority ethnic group’s innate superiority, they emphasize that the reason it is falling behind is because of unfair policy—for example, needless affirmative action for groups that complain about being historically disadvantaged, or cheating by foreign governments on global trade rules. These justifications need not be accurate, but they are part of the narrative that gives those falling behind self-respect. Importantly, the justifications minimize the need for the majority group itself to adapt—once the un-level playing field is righted, the group will recover its natural place in the social order, or so they believe.
What the populist nationalist leader views as a program to level the playing field looks to others like a protectionist program to exclude those who come from outside the native-born fold. Not only will the typical populist nationalist leader’s program, carried to its logical conclusion, allow identity to determine market participation and success, thus paving the way for cronyism, it will also divide society into a favored native group, with the rest excluded as undeserving not-quite-citizens. It is an appealing program for those who believe they will be on the inside, benefiting from the empathy of others in the national community like themselves, as they recapture the nation from the rootless multicultural aspirations of the governing elite. It is particularly attractive for those who are looking for a sense of identity, a sense of belonging, because their own proximate communities are in disarray. This is why rooted communities that are suddenly hit by economic adversity are prone to populist nationalist appeals as they lose trust in the establishment.4
WHY DOES POPULISM MATTER?
Populism, at its core, is a cry for help, sheathed in a demand for respect, and enveloped in the anger of those who feel they have been ignored. Both the left-wing and right-wing populists are right in their diagnosis—the elite have betrayed the people’s trust in the past. Looking forward, there is a very real fear that workers are not prepared for the changes that are coming, yet the elite establishment is largely paralyzed, and does not see that the actions of its own class are part of the problem. While the populist leaders have a better understanding of public concerns, they are unlikely to have the right answers either, because every policy answer has to resonate with their followers.
Yet public attention spans are short, so the intended consequences of policy are seemingly straightforward—raising tariffs on steel imports will save steel jobs—while the unintended consequences—it could lose us many more jobs elsewhere—are harder to explain to the layperson in 140 characters. All this means that in a campaign between the tribune of the people and the expert for the attention of the people, the tribune will always win out, more so if the expert has lost popular trust. If populist answers have to meet the filter of popular approval, if they crowdsource all their solutions, they are unlikely to be effective—after all, this is why Madison preferred representative democracy to direct democracy.5 There is wisdom in crowds, but it has to be distilled carefully.
In this chapter, we will draw on the economic developments we discussed in the previous chapter, as well as changes in the community and media, to explain why the electorate in developed countries has become more open to listening to radical politicians. At the heart of the problem will be that technological change is creating a meritocracy based on capability. At the same time, access to capabilities is narrowing as communities weaken and so are opportunities for the people in them. The situation is further complicated by issues of race and immigration.
THE GROWING DIVIDE
Surveys of people’s values across developed countries suggest that people tend to have greater trust and affinity for strangers, as well as are more concerned about the wider world beyond their immediate families, when they are economically secure.6 This partly explains why developed countries became significantly more open and generous to immigrants and minorities in the prosperous 1960s. The resulting policies, unfortunately, exacerbate domestic divisions today.
Developed country societies became progressively more socially liberal, as the well-educated children of prosperous 1960s middle-class parents became the tolerant vanguard of movements that pressed for the rights of the historically downtrodden, benefiting women, minorities, immigrants, and those in the LGBTQ+ community. In an insightful, satirical book, the New York Times commentator David Brooks labeled this new elite Bobos—bourgeois bohemians—because they had the work ethic of the single-minded Calvinist while retaining the social liberalism that only rebellious youth from a secure upper-middle-class background could have.7
Moderately educated male white workers, on the other hand, experienced the dwindling in decent job opportunities at the middle of the income distribution that we noted in the previous chapter. To the elite, immigrants and the newly empowered minorities were well-educated coworkers, sharing in the expanding numbers of high-quality jobs, and offering a daily testament of their own fair-mindedness. To the moderately educated worker, they were competition for scarce good jobs. As their economic security and social status became more fragile, the moderately educated became less able and willing to accommodate change.
There was a debate worth having about the merits of an open society—one open to trade, to new people, and to new ideas and values. It was not, however, a debate that took place, because the elite did not engage as they abandoned the integrated community. It was hard to fault their choice, though. The meritocratic markets now demanded it, and as they have throughout history, tested the community.
THE PARADOXICAL IMPORTANCE OF PLACE
Why does location matter so much in this age of technological wizardry? Can’t people in communities that lose jobs simply telecommute? After all, isn’t one element of the technological revolution the increasing ability to work at a distance? My daughter seems to accomplish everything she can do in her office, even while staying a continent away from it. As another example, Mitchell Petersen and I found that the average distance between a small-business owner in the United States and the bank branch she borrowed from had been increasing steadily since the 1970s, and recent work has confirmed that this pattern continues.8 The reason obviously is that banking transactions went from being conducted in person, to being conducted on the phone, then online, reducing the need to be nearby.
Somewhat paradoxically, though, despite being able to work at a distance, more and more skilled people seem to be attracted to places where there already are plenty of skilled people.9 Perhaps this is because serendipitous human interaction still matters. Today, it is rarely the lone inventor, beavering away in his basement, who comes up with the revolutionary breakthrough. Instead, innovation emerges from teams of productive people spurring one another on. Perhaps they need to be in the same room to generate ideas. Perhaps teams are cross-fertilized by other competing teams of smart people nearby, through meetings in bars and parties, or by simply poaching their members. That the whole is greater than the sum of the parts when capable people congregate together is a form of what economists term “agglomeration economies.”
This would explain why some regions like Silicon Valley or cities like London, New York, or San Francisco become magnets for the capable and talented, where they meet one another and become yet more successful. My colleague Chang-Tai Hsieh and Enrico Moretti from Berkeley estimate that the dispersion in wages across US cities in 2009 was twice as large as in 1964, in part because of the emergence of superstar cities like New York, San Francisco, and San Jose.10 They argue that simply reducing the stringent zoning regulations in New York, San Jose, and San Francisco to that of the median US city, and thus allowing freer worker movement into those cities with a red-hot job market, would have increased GDP per US worker by an additional $3,685 in 2009.
Agglomeration economies in the workplace would suggest economic productivity goes up when the capable flock together. It is hard to estimate their size, but one credible study does so. It finds that in an industry that emphasizes crea
tivity and innovation—academia—they seem to be small. Luigi Zingales, along with Han Kim and Adair Morse, examines academic productivity in economics faculties in elite universities.11 In the 1970s, they find that a faculty member moving up from a non-top-five university to a top-five university would see her productivity (in terms of quality-adjusted papers published) increase 60 percent. By the 1990s, this effect had vanished. The authors argue that in the past, you had to be at an elite university to collaborate with someone there. Today, you can collaborate at a distance, which eliminates the need to move to an elite university. Indeed, they find that the percentage of papers coauthored by a faculty member from an elite university with someone from a non-elite university doubled between the 1970s and the early 2000s.
Interestingly, though, they do not find that faculty members at the elite universities are any less productive, relative to other universities, than in the past. Indeed, the productivity difference between faculty members at the top universities and elsewhere seems to have increased. Put differently, the most productive faculty do still choose to be at elite universities.
Academia may not be representative of the stereotypical highly skilled industry but this study raises an important possibility; perhaps the capable do not need to be physically proximate to be productive—agglomeration economies in the workplace may indeed have fallen as technology has reduced distance. Why, then, do the capable increasingly choose to move to the same places as do productive academics to elite universities? It may well be that the prestige of an elite university or a white-shoe investment bank still attracts them, but it is not obvious that prestige has gone up over time to offset the ability to work at a distance.
An alternative possibility, which we will now turn to, is that it is not so much the workplace but the attraction of the residential community full of other capable people that drives them together. More important than one’s social taste for having people from a similar socioeconomic background as neighbors, is the economic imperative of giving one’s children the best possible education in a world that emphasizes capabilities. Children do better in schools full of children from supportive family backgrounds, hence the imperative to move to school districts where there are largely such families. And regardless of what drives the capable to reside in a particular region, their presence will attract more good employers to set up in that region, attracting yet more capable workers. . . . Strong communities create virtuous circles that strengthen them further.
Observationally, we will see capable people working and living in the same superstar hubs regardless of whether there are agglomeration economies in the workplace or in the residential community. Of course, both may be present at the same time. The former would suggest an economy-wide benefit from the sorting, the latter would suggest a private benefit to the capable families that sort together, and a private cost to the communities who are deprived of their presence. Regardless of which effect predominates, many communities will see a narrowing of opportunity as the capable abandon mixed communities to live and work in communities full of their own kind.
THE GREAT RESIDENTIAL SORTING
As education became the great differentiator, and as women increasingly obtained degrees and became professionals, couples paired off based on education and incomes. The proximity of smart people was not entirely coincidental. They met at colleges, as they always used to, except there were more women now in colleges. Increasingly, as we have seen, smart workers also congregated together in interesting cosmopolitan cities (or green, affluent suburbs). High real-estate prices drove out any remaining smokestack industries and their workers from the cities, making the areas more gentrified and livable for the professional elite but also unaffordable for most others.
While earlier, doctors married their nurses and managers their assistants, now professors marry professors (as I did) and consultants marry consultants. These couples entered into marriage carefully, and sometimes hesitantly, but they had the dual incomes to take the economic stress and uncertainty out of daily life and make marriage work. Often, they planned children carefully. Importantly, they had the ability and desire to invest in them, thus maintaining the hope of progress for the next generation.12
THE IMPORTANCE OF CAPABLE PARENTS
The advantages capable parents give their children starts early on. For instance, one study finds that children of professional families hear more spoken words—about 2,100 per hour—compared to 1,200 per hour in working-class families and 600 per hour in families on welfare.13 This means the child in a professional family typically hears millions more words every year than a child in a family on welfare, which naturally boosts both the child’s vocabulary and its ability to speak relative to its peers.
The famous Stanford marshmallow test and follow-up studies suggest that professional families give their children more than just learning—they give them trust and self-control. In the early 1960s, Walter Mischel and his graduate students gave little children from Stanford University’s Bing Nursery School the choice between eating a marshmallow immediately, or waiting and getting a second marshmallow after fifteen minutes or so if they could hold out. Videos of the torments children go through as they stare at the marshmallow have been an enormous source of entertainment for adults, but Mischel found something more. Those who held out typically did better later in life, with higher SAT scores, less likelihood of substance abuse, and lower body mass index thirty years after the test.14
A later study at the University of Rochester qualified Mischel’s findings.15 Those researchers conjectured that for children in crowded homes, surrounded by predatory older children and with no adults around, the “only guaranteed treats are the ones you have already swallowed.” In contrast, in a stable home where parents promise and deliver on treats, promises may be more credible, and children more willing to wait. To test this, the researchers divided children into two groups, one set to whom a researcher defaulted on a promise to give stickers, and the other to whom the researcher delivered on the promise. When these two groups were subjected to the marshmallow test, the group which obtained the sticker and thus found the researcher reliable waited four times longer before eating their marshmallow (many even waited until the researcher returned, thus earning the second marshmallow) than the group that had the unreliable researcher. It would appear, then, that self-control seems a learned attribute, emanating from a belief that the world is stable and reliable.
This belief is something professional families have a far greater ability to give their children. While Mischel’s original study was conducted on children in the prosperous Stanford University community, its broader implication is that strong stable families prepare children better for life by giving them a healthier worldview. Indeed, not only does the Chicago economist James Heckman find that the early childhood environment, structured by the family and community, is essential for further learning and a successful career, he also somewhat ironically describes “the biggest market failure of all” is that of picking the “wrong” parents.
THE PRESSURES OF BRINGING UP CHILDREN IN A MERITOCRACY
As we have seen in the last chapter, technological change has accentuated the income differences associated with capabilities, which is a mix of inherent intelligence and talents that we will call smarts, coupled with educational attainments, all tempered with a dose of experience. Today’s job market favors those with higher capabilities while disfavoring those in the middle. Furthermore, the winner-take-all tendencies in globally integrated markets increase the returns to small capability differences among people at the top of the distribution of capabilities. The market has therefore increased the rewards to being very capable significantly compared to the past.
If the names of winners of top incomes in society were drawn from a massive urn containing everyone’s names, people would be envious of the winners but not angry. Inequality, per se, is not divisive. After all, everyone had an equal chance. If the winners made
it because of their proximity to the government and their privileged access to lucrative deals and contracts, people would resent their success because it would be tainted by corruption. It would not, however, make them look at one another as competitors. In either case, the newly anointed nouveau riche, picked by chance or corruption, would have little need to move out of their community. They might build mansions to flaunt their wealth to their neighbors, but that might be the extent of the change.
There is a specific problem with the extreme meritocracy created by the forces we discussed in the last chapter—top incomes are not handed out at random; they typically go to those who are more capable. Capable parents who want the best life chances for their children (and who would not?) will undoubtedly look for the best education that money can buy. As Richard Reeves writes in his perceptive book Dream Hoarders, having established a stable family and an instructive and interesting home environment for their children, highly educated parents will then complete the job by securing good schools for their children and providing them every other assistance—say resume-padding internships or tutors for college preparation—where needed.16 The higher the socioeconomic status of the parents, the more all this matters, for it ensures their children will inherit their place in the emerging meritocracy.
THE IMPORTANCE OF COMMUNITY FOR LEARNING
What actually does matter for the quality of education a child receives? In 1966, sociologist James Coleman wrote a report on the state of America’s schools, based on data collected from one of the largest social science surveys that had been conducted till then.17 The study tried to understand how well children were learning, attempting to identify factors such as funding, teachers, fellow students, or family that influence educational outcomes. The conventional wisdom emphasized the criticality of a school’s physical facilities and its funding. These were not unimportant, Coleman found, but far more influential in contributing to learning were the school’s student body diversity as well as a student’s home life. Coleman argued that children, especially from poorer backgrounds, performed better if the school brought together students from very different social and economic backgrounds, for a student’s learning was a “function more of the characteristics of his classmates than those of the teacher.” As important as what happened in school was what happened at home, where the family’s educational background was the most important factor in bolstering what was taught in school.
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