The Meritocracy Trap

by Daniel Markovits

  Thrift retail—low-cost supermarkets, dollar stores, and big-box stores—has grown astronomically in the past decades. Walmart alone has grown from a single store in 1962 to generate nearly $300 billion in U.S. revenue in 2016. And Dollar General and Family Dollar have averaged nearly 9 and 7 percent annual revenue growth in recent years. Shoppers at all three stores earn substantially less—in the case of Family Dollar nearly 40 percent less—than shoppers even at other less downmarket big-box stores like Target, and the earnings gap to shoppers at upmarket stores is much greater still. (When big-box chain stores displace mid-skilled for unskilled retail workers, they contribute directly to the demand for the goods that they sell. Just as Henry Ford’s decision to pay his workers enough for them to desire and to afford his cars epitomized the Great Compression’s egalitarian economy, so Walmart’s practice of paying its workers so little that they cannot afford to shop other than at thrift retailers epitomizes today’s unequal economy.)

  Thrift finance has also grown rapidly, to become an inescapable part of middle-class life. Payday loans give this pattern an open and notorious illustration. Payday lending serves people who obviously cannot afford their own lives, even week to week. The obviousness of the shortfall gives the business a bad odor, but that has not stopped its increase. The payday lending industry has grown from fewer than five hundred stores in the early 1990s, to twelve thousand in 2002, to twenty-two thousand by 2016. There are more payday lending stores in the United States today than there are McDonald’s and Starbucks franchises combined, and in 2012, Americans spent $7.4 billion on payday loans.

  Moreover, this open expression of thrift finance is only the small tip of a massive iceberg. Middle-class households accumulated substantial savings at midcentury, and as recently as the late 1970s, the bottom 90 percent of the income distribution enjoyed a savings rate of between 5 and 10 percent. But since then, saving vanished, and borrowing largely replaced income as the source of funding for rising consumption. Household debt therefore accumulated rapidly for this group, coming to exceed income in the late 1990s, with debt accumulation highest between the 50th and 75th percentiles. The borrowing does not go to frivolous or extravagant purchases, but instead overwhelmingly serves socially legitimate (or even necessary) expenses, that nevertheless exceed the incomes mid-skilled labor can command. Indeed, seven out of every ten low- and middle-income households reported using credit cards as a “safety net,” to pay unavoidable costs such as medical expenses and car and house repairs. Middle-class households quite generally subsist on what are functionally payday loans, required to paper over the widening gap between middle-class needs and stocks.

  Especially against the backdrop of increasingly insecure earnings, debt used to finance consumption casts an inescapable shadow of catastrophe. As Charles Dickens’s Mr. Micawber complained, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result, happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” Micawber faced debtor’s prison, as had Dickens’s own father. More recently, middle-class Americans face an unprecedented wave of foreclosures and bankruptcies.

  The scale of enforced debt collection is remarkable: in a typical recent year, New York City alone saw 320,000 consumer debt cases filed in its civil courts, a number roughly equal to all the cases filed in all federal courts that year. Even with the threat of prison removed, debt remains an affliction for the middle class. And like imprisonment, foreclosures and bankruptcies cast their shadows across whole lives, and down the generations, breaking marriages and disrupting childhoods. Indeed, the effect is so powerful that the middle class has been renamed, by some, the precariat.

  On the other hand, luxury goods—goods that appeal to those at the top, in the glare of economic inequality’s light—increasingly dominate the spending and mold the self-image of the rich. The norms and habits that framed Fortune’s midcentury sensibilities have been ground away under the pressure of meritocratic inequality’s inner logic, and the meritocratic elite now prizes the extravagances that the magazine then derided. Tastes and even morals, falling in line with new economic fundamentals, now disparage things that are ordinary, unexceptional, or merely adequate and valorize distinctive, extravagant opulence.

  Meritocracy makes this turn inevitable. Where industry constitutes honor, meritocratic elites lack the time to cultivate the leisured habits that Veblen described, and (alongside conspicuously intense labor) luxury goods rather than exploit become the main avenue for establishing social and economic caste. The rich now consume conspicuously in order to shine rising inequality’s light on their fortunes. Fine and expensive things become honor’s physical manifestations: an embodiment of industry and of the elite’s alienated personality; meritocratic virtue made flesh.

  This is most obvious in brands that openly declare their luxurious exclusivity. Cars that cost ten times the price of an ordinary vehicle are readily available and in fact commonly seen in every major city today. Bentley Motors sold more cars priced over $150,000 in 2014 than the entire automotive industry did in 2000; the Geneva Auto Show has in recent years included unprecedented numbers of million-plus-dollar cars (including one, made by Lamborghini, that costs $4 million); and a recent study by Brand Finance found that Ferrari has become the world’s “most powerful” brand. Similarly, there now exist stores that specialize in watches that cost tens of thousands of dollars. Luxury ovens and refrigerators—made by firms such as Viking, Sub-Zero, Bertazzoni, and La Cornue—cost ten and even one hundred times the price of ordinary appliances. And the best restaurants in New York, Washington, or San Francisco now cost easily fifty times the price of an ordinary dinner out—the French Laundry, opened in the 1990s to fulfill its chef’s “longtime culinary dream: to establish a destination for fine French cuisine in the Napa Valley,” costs a minimum of $310 per person, without including the $5,000 bottles of wine readily available from its cellars.

  Overall, retail sales of conventional luxury goods have grown roughly four times faster than the broader economy, by an average of more than 10 percent annually since 1990; and Goldman Sachs predicts that sales will continue to outstrip economic growth going forward, doubling in the next decade. The prices of individual items bring the aggregate sales data concretely into particular lives. Whereas midcentury prices placed even luxuries within reach of the middle class, on special occasions or perhaps where a person cared especially about a particular luxury (as a car lover, for example), the new ratios place luxury goods forever out of reach of the middle class. At midcentury, Billy Joel’s Sergeant O’Leary could aim to trade in his Chevy for a Cadillac. But a middle-class person today cannot credibly dream of owning a Bentley, or wearing a Blancpain watch, or cooking on a La Cornue range, or eating at the French Laundry.

  Moreover, luxury has dramatically expanded its field of action. Vast swaths of the goods that were once aimed at mass, middle-class consumption have been transformed into luxury goods. The average ticket price to a concert in Beyoncé’s most recent tour, for example, exceeded $350, and tickets to home games of the Los Angeles Lakers, Dallas Cowboys, and New York Yankees can easily cost over $200. At the same time, entirely new types of luxury goods are now being made and sold: cruise ships create elite floors with private concierges and swimming pools and no access to the mass of passengers (not even by using points from loyalty programs); resorts create limited-access passes and low-traffic attractions that cost ten times more than an ordinary entrance ticket; airlines increase the luxury of first class and ferry the highest-paying passengers between terminals in Porsches, as airports build separate line-free terminals for these travelers; and entirely new businesses claim and then scalp even nominally free goods—public parking spots (Monkey Parking) or restaurant reservations (Reservation Hop)—to those rich enough to pay. (These new businesses trigger especially robust resentment, as, perhaps unsurprisingly, does first-class air travel: the presence of a fi
rst-class cabin increases the incidence of air rage among passengers traveling steerage by the same amount as a nine-hour-twenty-nine-minute flight delay, and where steerage passengers must walk through first class to reach their seats, by the equivalent of a fifteen-hour delay.)

  Other goods and especially services that people do not ordinarily associate with luxury—because they involve no sybaritic indulgence—are also now distinctively consumed by the rich.

  Elite private schools and colleges are just one example, among very many. Concierge doctors, who charge patients fees and annual retainers paid out of pocket and free from price caps negotiated by insurance, provide luxury medical care. The higher fees allow them to see perhaps a quarter as many patients as ordinary doctors, provide leisurely consultations (as opposed to the 15.7 minutes of attention that comprises a doctor’s median patient visit length), and offer same-day appointments, including on weekends. Concierge hospital wings provide accommodations that resemble luxury hotels—Frette bed linens, elaborate restaurant menus with dishes such as prosciutto di Parma or veal scallopini, and personal butlers—for cash customers who can pay several thousand dollars a night on top of medical bills. (Even luxury dentists now exist: a Frenchman named Bernard Touati, for example, fixes the teeth of oligarchs and pop stars, including Madonna, in a Paris office nestled among the city’s Chanel, Dior, and Prada boutiques; and he charges nearly $2,000 for a single filling, although Diane von Furstenberg gave him an IOU for two dresses at her boutique instead.) Lawyers, accountants, and investment advisers, again paid for without insurance and on the concierge model, similarly provide luxury legal and financial services (including income defense) to rich clients. Elite households even buy distinctive groceries. High-socioeconomic-status Americans eat more healthy foods (fruits, vegetables, fish, nuts, whole grains, and legumes) than middle-class Americans, who eat more healthy foods than low-socioeconomic-status Americans. Both gaps are growing, and, as usual, the gap between the top and the middle exceeds the gap between the middle and the bottom.

  All these goods and services are consumed almost exclusively by the rich and indeed as a self-conscious performance of eliteness through consumption. If elites view consuming them as responsible (fruits and vegetables), necessary (medical care), or even virtuous (education), then this just shows how fully meritocratic ideals have colonized the idea of luxury.

  Finally, these joint trends reinforce each other and cumulate their effects, so that the rich and the rest increasingly buy not just different goods but different brands, at separate stores, paid for by different means.

  Like the middle of the labor market, so the middle of the consumer market is literally being hollowed out as commerce shifts to the extremes of thrift and luxury. Middle-class restaurants such as Olive Garden and Red Lobster struggle even as fast-food chains like Taco Bell and upscale restaurants like the French Laundry both thrive. Middle-class hotel brands (Best Western) grow at half the pace of luxury brands (Four Seasons and St. Regis). And middle-class supermarkets and department stores (Sears and J. C. Penney) collapse even as bargain stores (Price Chopper, Dollar Tree, Family Dollar) and luxury stores (Whole Foods, and Nordstrom, Barneys, and Neiman Marcus) both expand, often into the very locations that the middle-class brands have abandoned. (Barneys, for example, famously moved into Loehmann’s iconic Chelsea storefront.)

  Even at the till, elites pay differently, using income or savings (one-percenters still save perhaps a third of their incomes) rather than borrowed funds. And when they do borrow, the rich use debt (for example, thirty-year fixed-rate prime mortgages) to leverage rather than to replace their incomes, and to multiply the economic returns from their investments.

  When they cumulate in this way, differences produce not just distinction but segregation. Elite schools and universities separate rich from middle-class students. Concierge doctors eliminate common waiting rooms or even the shared experience of waiting in any room. Even for seemingly ordinary purchases, segmented sellers increasingly have neither customers nor even products in common.

  The food department at Big Lots does not have a cheese cave or craft butcher and does not sell artisanal ice cream, while Whole Foods does not sell Coca-Cola, Oscar Mayer hot dogs, or Heinz ketchup. Meanwhile, Family Dollar and Neiman Marcus do not stock a single common designer. And Taco Bell and the French Laundry do not use a single ingredient in common, not even salt. Even the attitudes of the two restaurants toward their ingredients are oceans apart. Taco Bell’s website says that its ingredients “do have weird names” but are all “safe and approved by the FDA.” A request for ingredients sent to the French Laundry produced a fifty-page book, with full-color photographs and hand-signed by the chef, telling the personal story of every supplier. Butter, according to the book, comes from a farm in Vermont that declares, “To make butter, one must be willing to sacrifice a measure of free will and live according to the needs of animals.”

  Meritocratic inequality has transformed consumption so that elite and middle-class consumers have increasingly few spaces or even experiences in common. All of life is remade on the model of class-segregated airplane cabins.

  PLACE

  The roughly equivalent middle-class prosperity of St. Clair Shores and Palo Alto exemplified the economic geography of midcentury America. Other towns were similar. In Sigmona Park, just outside Washington, D.C., for example, a neighborhood newsletter kept continuously since midcentury reveals that in the early 1970s, a land surveyor, a Marine major, an interior designer, a hairdresser, a policeman, a maintenance worker, and a secretary all lived side by side, on Overbrook Street.

  The majority of Americans lived in comparable middle-class communities, distinguished by culture rather than income and caste, and neighborhoods owed their sense of place to climate, history, or even the characters who lived there, rather than to economic data.

  Incomes across regions converged steadily between the end of the Second World War and the end of the 1970s (and this convergence accounted for perhaps 30 percent of the overall reduction in wage inequality that the country experienced over those years). Whereas the richest region had enjoyed nearly twice the per capita income of the poorest in 1945, the gap fell by roughly two-thirds between 1945 and 1979. Even wealth spread itself evenly over the American map: in the mid-1960s, the country’s twenty-five richest metro areas included Rockford, Illinois; Milwaukee; Ann Arbor, Michigan; and Cleveland.

  These developments expressed the economic logic of midcentury production in geographic terms. The rentier elite had economic reasons to live near the physical assets that sustained its rents. Both agricultural land and industrial machines and factories were (often of necessity) geographically dispersed. This encouraged capital’s elite owners to spread themselves throughout the country, across its physical space. And as midcentury elites diluted themselves—college graduates, for example, were spread relatively evenly across cities—the middle class came to dominate almost everywhere. Economic geography made the midcentury elite’s social merger into the middle class inevitable, as the elite’s dilution and thin ranks required social mixing across class lines. As Bill Clinton’s and George Bush’s childhoods replicated themselves in neighborhoods across the country, a “single American standard of living” emerged.

  Today, meritocratic inequality reverses these forces. Superordinate workers bring their human capital with them wherever they go; and they can find jobs that pay elite wages only by working together in close physical proximity, so that their labor-intensive production can benefit from economies of agglomeration and in particular knowledge spillovers. Furthermore, the new elite requires a collective training infrastructure, comprising both schools and out-of-school enrichment activities, in order effectively to transmit its human capital to its children. Finally, the luxury goods that today’s elite favor can be economically supplied only where there are large concentrations of rich consumers, as in prosperous cities. These forces drive the new elite tow
ard geographic concentration, and America is resegregating by income.

  To begin with, the elite is moving out of the countryside and into cities. (Middle-class people, by contrast, increasingly stay put, so that moving itself now marks eliteness.) In 1970, rural and urban Americans possessed roughly similar levels of education; by the new millennium, young adults in rural areas were less than half as likely to possess college degrees as young adults living in the average city, and the difference has increased still further in the years since. This represents a brain drain from the countryside commensurate to the outmigration that signally slows economic development in many poor countries.

  Moreover, elite migration is producing distinctive education and income profiles even among towns, as college graduates and high earners congregate in certain cities and not others. There were by the turn of the millennium sixty-two metro areas in which fewer than 17 percent of adults possessed college degrees and thirty-two metro areas in which more than 34 percent were college graduates. Some cities, with familiar names, still more powerfully repel or attract educated workers. Fewer than 10 percent of Detroit’s residents have college degrees; by contrast, Austin, Boston, San Francisco, San Jose, and Washington, D.C., all average nearly 50 percent. New York City similarly experienced a 73 percent growth in the raw number of college-educated workers between 1980 and 2010, even as the number of workers without college degrees fell by 15 percent. And nearly half of couples in which both partners are highly educated live in a handful of large cities.

  Incomes, under meritocracy, follow education. Indeed, differences in patent production alone (an excellent proxy for population education) account for nearly a third of the variation in wages across regions. It is therefore no surprise that between 1980 and 2012, the ratios of mean city incomes to the national mean grew by roughly 50 percent for New York, 40 percent for Washington, and nearly 30 percent for San Francisco. More broadly, since 1990, the ten best-educated metro areas have experienced more than twice the increase in per capita incomes of the ten worst-educated metro areas. And workers in the most educated cities now receive on average twice the salaries of workers in the least educated cities.