The Meritocracy Trap

by Daniel Markovits

  “fledgling at best”: Matthias Kipping and Lars Engwall, Management Consulting: Emergence and Dynamics of a Knowledge Industry (New York: Oxford University Press, 2002), 71.

  the leisured norms of the aristocratic elite: The industry, moreover, devoted itself less to management and more to technical problems in production processes—to increasing the efficiency of “line workers at the bottom of the organizational chart.” The first “management consultant” was, after all, Frederick Taylor. See Duff McDonald, The Firm: The Story of McKinsey and Its Secret Influence on American Business (New York: Simon & Schuster, 2013), 26–28. Hereafter cited as McDonald, The Firm. See generally Walter Kiechel, The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Cambridge, MA: Harvard Business Press, 2010), 3–4. Hereafter cited as Kiechel, The Lords of Strategy. See also Terrence Deal and Allan A. Kennedy, The New Corporate Cultures: Revitalizing the Workplace After Downsizing, Mergers, and Reengineering (Reading, MA: Perseus, 1999), 64.

  until President Kennedy stopped: See David Burkus, Under New Management: How Leading Organizations Are Upending Business as Usual (New York: Houghton Mifflin Harcourt, 2016), 194.

  applicants who might be turned down: McDonald, The Firm, 94.

  to its own business: McDonald, The Firm, 113.

  (the top 5 percent of the class): Kiechel, The Lords of Strategy, 9.

  join elite consulting firms: See, e.g., Harvard Business School, “Recruiting: Data & Statistics,” www.hbs.edu/recruiting/data/Pages/detailed-charts.aspx.

  “Investment Banking vs. Consulting”: See Ho, Liquidated, 332–33.

  “foment a stratification within companies and society”: Kiechel, The Lords of Strategy, 9.

  “silver-haired industry experience”: Kiechel, The Lords of Strategy, 9.

  “break an organization down”: John Micklethwait and Adrian Wooldridge, The Witch Doctors: Making Sense of the Management Gurus (New York: Random House, 1996), 26. Hereafter cited as Micklethwait and Wooldridge, The Witch Doctors.

  responsible for their downsizings: See Micklethwait and Wooldridge, The Witch Doctors, 29–31; Thomas Davenport, “The Fad That Forgot People,” Fast Company, October 31, 1995, accessed November 19, 2018, www.fastcompany.com/26310/fad-forgot-people.

  “Overhead Value Analysis”: Terrence Deal and Allan A. Kennedy, The New Corporate Cultures (New York: Perseus, 1999), 64.

  excessive embrace of middle management: McKinsey argued that the midcentury approach had allowed “the number of nonproduction employees in manufacturing industry, for example, [to] increase six times as fast as that of production workers [between 1950 and 1970].” See John L. Neuman, “Make Overhead Cuts That Last,” Harvard Business Review, May 1975, https://hbr.org/1975/05/make-overhead-cuts-that-last. Hereafter cited as Neuman, “Make Overhead Cuts That Last.”

  “process, though swift”: The firm insisted, however, that its approach could cut overhead costs by 15 to 30 percent swiftly (within four months). See Neuman, “Make Overhead Cuts That Last.”

  Often, the consultants shifted these “wrenching” decisions to the managers themselves, who were “expected . . . to identify ways in which they and lower-level managers [could] be eliminated in order to purge the corporation of ‘managerial bloat.’” Randy Hodson, “3 Reviews: The Many Faces of Organizational Control,” Administrative Science Quarterly 36, no. 3 (1991): 490, reviewing Vicki Smith, Managing in the Corporate Interest: Control and Resistance in an American Bank (Berkeley: University of California Press, 1990), http://ark.cdlib.org/ark:/13030/ft267nb1gt/.

  “we are all in this together”: Kiechel, The Lords of Strategy, 9.

  “contributed to the fiercer feel”: Kiechel, The Lords of Strategy, 9.

  the skill profile of American executives: It does not help, as commentators sometimes try to do, to derive changes to managerial styles directly from the changes in the complexity of production. It is true that twentieth-century firms—recall the story of the Singer sewing machine company—brought production inside the firm in order to secure uniformity and compatibility among increasingly complex machine parts. But explaining why management rather than contract better secures these ends requires a further argument, and that argument must sound in the relative cost and effectiveness of the technologies that each approach to coordination deploys.

  The transformation from twentieth- to twenty-first-century management styles drives this point home. Production today is surely still more complicated than it was at the middle of the last century, and yet managerial hierarchies have become not more layered but flatter. Increasing production complexity thus favored more elaborate management at midcentury and favors less elaborate management today. The difference comes down to changing managerial technologies and, ultimately, to the changing work ethic and skill of the managerial class.

  concentrate them in top executives: CEOs now make roughly three hundred times the median income. See Lawrence Mishel and Alyssa Davis, “Top CEOs Make 300 Times More Than Typical Workers,” Economic Policy Institute, June 2015, www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/. In 2010, the top 1 percent by income captured roughly 20 percent of all income but owned approximately 35 percent of all publicly traded shares owned by U.S. households. The bottom 90 percent owned only 19.2 percent. Edward N. Wolff, “The Asset Price Meltdown and the Wealth of the Middle Class,” NBER Working Paper No. 18559 (November 2012), www.nber.org/papers/w18559.

  succumbed to a leveraged buyout: See Faludi, “The Reckoning.”

  “Targeted Returns on Current Investment”: See Faludi, “The Reckoning” (“Not long after [Mr. Magowan began firing Safeway employees following the LBO], Safeway replaced its longtime motto, ‘Safeway Offers Security.’ The new corporate statement, displayed on a plaque in the lobby at the corporate headquarters, reads in part: ‘Targeted Returns on Current Investment.’”).

  costing jobs: See Faludi, “The Reckoning.” See also Mord Bogie, Churchill’s Horses and the Myths of American Corporations (London: Quorum Books, 1998), 168–69.

  were fired: See Faludi, “The Reckoning,” 2, col. 4.

  wrongful termination suits: See Faludi, “The Reckoning,” 2, col. 4.

  acquired Safeway through a merger: See Christine Wilcox, “Bob Miller Assumes Role of Chairman & CEO of Albertsons, NAI & Safeway.” Market Mixx (blog), Albertsons, www.albertsons.com/bob-miller-assumes-role-of-chairman-ceo-of-albertsons-nai-safeway/ [inactive], and “Executive Profile of Robert G. Miller,” Bloomberg, accessed October 9, 2018, www.bloomberg.com/research/stocks/private/person.asp?personId=23462422&privcapId=25591240.

  transportation and energy industries: See “Steven A. Burd, 1949–,” Reference for Business, www.referenceforbusiness.com/biography/A-E/Burd-Steven-A-1949.html.

  from 40 to 110 percent of base pay: See Faludi, “The Reckoning.” Faludi reports the potential bonus set by the CEO’s compensation plan and observes that he earned the highest possible bonus in each of the initial years following the buyout. These increases came atop a salary that had already grown by the 1980s. In 1986, just before the buyout, CEO Peter Magowan (Robert Magowan’s son) earned $925,000 (roughly $2 million in 2015 dollars). See Jonathan Greenberg, “Sold Short,” Mother Jones, May 1988, 39.

  only increased over time: See, e.g., Safeway, Inc. U.S. SEC Filings, Form DEF 14A, March 25, 1994, 8; Safeway, Inc., U.S. SEC Filings, Form DEF 14A, March 22, 1996, 11.

  his predecessor in the 1960s was paid: Safeway, Inc., U.S. SEC Filings, Form 10-K, January 3, 2015, 117.

  riots against the machine looms: See J. F. C. Harrison, Society and Politics in England, 1780–1960 (London: Harper & Row, 1965), 70–72. See also Paul Halsall, “Leeds Woollen Workers Petition, 1786,” Fordham University, Modern History Sourcebook, August 1997, https://sourcebooks.fordham.edu/mod/1786machines.asp.

  “many of
the major technological advances”: See Goldin and Katz, The Race Between Education and Technology, 122.

  Conclusive evidence that the Industrial Revolution biased the labor market systematically against skill remains elusive. And industrial innovations did not bias the labor market against all skills, to be sure. Demand increased for engineers, for example, and eventually also for managers. See Goldin and Katz, The Race Between Education and Technology, 265. But evidence to generalize the example in the main text does exist. John James and Jonathan Skinner use the 1850 census of manufacturers to show that capital replaced skilled workers more rapidly than unskilled workers at the height of industrialization and that the replaced workers had previously enjoyed substantial (more than 60 percent) wage premiums over unskilled laborers. John A. James and Jonathan S. Skinner, “The Resolution of the Labor-Scarcity Paradox,” Journal of Economic History 45, no. 3 (September 1985): 513–40.

  mass production using prefabricated parts: See Goldin and Katz, The Race Between Education and Technology, 122.

  “The butcher, baker, glassblower”: See Goldin and Katz, The Race Between Education and Technology, 122.

  had previously dominated production: In 1910, two-thirds of Ford’s workers were skilled mechanics. By 1914, over half were unskilled recent immigrants without any mechanical experience. See Cappelli, The New Deal at Work, 58; Stephen Meyer, The Five Dollar Day: Labor Management and Social Control in the Ford Motor Company (Albany: State University of New York Press, 1981). See also Goldin and Katz, The Race Between Education and Technology, 123; Harry Braverman, Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century (New York: Monthly Review Press, 1974), 146; and David Hounshell, From the American System to Mass Production (Baltimore: Johns Hopkins University Press, 1984).

  Note the contrast to technology’s effect on carmaking later in the twentieth century, when robotic assembly displaced less skilled line workers with more skilled machinists. See Goldin and Katz, The Race Between Education and Technology, 123. Goldin and Katz summarize the contrasting eras: “The movement from artisanal production to factories in the nineteenth century involved the substitution of capital and unskilled labor for skilled (artisanal) labor, while the adoption of continuous-process and unit drive methods in the twentieth century involved the substitution of capital and skilled (educated) labor for unskilled labor.” Goldin and Katz, The Race Between Education and Technology, 125.

  “a decrease in the fraction”: See Joseph J. Spengler, “Changes in Income Distribution and Social Stratification: A Note,” American Journal of Sociology 59, no. 3 (November 1953): 247. Simon Kuznets famously held a similar view. Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45, no. 1 (March 1955): 1. See also Jeffrey Winters and Benjamin Page, “Oligarchy in the United States?,” Perspectives on Politics 7, no. 4 (December 2009): 731.

  now opposes economic equality: A common view treats technology’s forward march as a brute fact to which social and economic life must adjust, but that society cannot aspire to control, and for which society cannot be held to account. The dominant metaphor for innovation’s interactions with the labor market and its impact on economic inequality imagines, in the words of the title to a prominent book, a “race between education and technology,” in which growing inequality arises because the social institutions that produce and distribute education cannot keep up with technology’s growing demands for skill. See Goldin and Katz, The Race Between Education and Technology. Other expressions of the dominant view include Alan B. Krueger, “How Computers Have Changed the Wage Structure,” Quarterly Journal of Economics 108, no. 1 (February 1993): 33; Eli Berman, John Bound, and Zvi Griliches, “Changes in Demand for Skilled Labor Within U.S. Manufacturing,” Quarterly Journal of Economics 109, no. 2 (May 1994): 367; David H. Autor, Lawrence F. Katz, and Alan B. Krueger, “Computing Inequality: Have Computers Changed the Labor Market?,” Quarterly Journal of Economics 113, no. 3 (November 1998): 1169. The metaphor treats innovation’s skill bias as inevitable, and certainly as independent of the institutions and practices that dispense education: for a race to make sense, the competitors must each run under separate power. The assumption behind this metaphor—that innovation necessarily favors skill—is so powerful and so pervasive that it resembles the air that we breathe, being almost entirely unnoticed even as everything else depends on it. Even when they describe technological innovation’s skill bias and its consequences for rising economic inequality in elaborate detail, conventional views never even ask why technology works in just this way, just now.

  to develop and implement: See, e.g., Herbert Marcuse, One Dimensional Man (Boston: Beacon, 1964), 154 (describing how “‘man-made creations’ issue from and re-enter a societal ensemble”); Frederick Ferré, Philosophy of Technology (Athens: University of Georgia Press, 1995), 38–42 (differentiating between theoretical and practical intelligence while connecting both back to the society in which they are formed).

  Economists sometimes distinguish between an economy’s meta-production function, which consists of all technologies that are theoretically discoverable (or the “envelope of all known and potentially discoverable activities”), and its actual production function, which involves only the technologies that innovators, given the social and economic forces that they face, have actually discovered. See Yujiro Hayami and V. W. Ruttan, “Agricultural Productivity Differences Among Countries,” American Economic Review 60 no. 5 (December 1970): 898. Hereafter cited as Hayami and Ruttan, “Agricultural Productivity.”

  opportunities for profit: Here see Acemoglu, “Technical Change,” 37, and Daron Acemoglu, “Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality,” Quarterly Journal of Economics 113, no. 4 (November 1998): 1055. Hereafter cited as Acemoglu, “Why Do New Technologies Complement Skills?”

  in productive engines: See, e.g., Aldo Schiavone, The End of the Past (Cambridge, MA: Harvard University Press, 2002), 136, hereafter cited as Schiavone, The End of the Past; James E. McClellan III and Harold Dorn, Science and Technology in World History (Baltimore: Johns Hopkins University Press, 2006), 103–4. Aristotle observed—and Cicero repeated the observation—that “only in a fantastic world where shuttles were capable of weaving by themselves could the institution of slavery be dispensed with.” See Schiavone, The End of the Past, 135. The availability of slave labor (with slaves themselves being expressly conceived of as what Aristotle called “animate instruments” or human production machines) rendered industrial machines economically unnecessary. See Schiavone, The End of the Past, 132, 136.

  Social norms that elevated theoretical (and especially philosophical) learning and belittled applied and practical sciences present another much-cited reason why ancient Greece and Rome (and also ancient China) never industrialized. See Schiavone, The End of the Past, 136–53; Justin Yifu Lin, Demystifying the Chinese Economy (Cambridge: Cambridge University Press, 2012), 48–51.

  (such as Japan): See Hayami and Ruttan, “Agricultural Productivity,” 898.

  Even among otherwise similarly situated societies, such as the European colonies in the New World, the choice of crops, size of farms, nature of labor (whether indigenous or immigrant, free or slave), and other technologies of production all varied depending on soil and climate. See, e.g., Stanley L. Engerman and Kenneth L. Sokoloff, “History Lessons: Institutions, Factor Endowments, and the Path of Development in the New World,” Journal of Economic Perspectives 14, no. 3 (Summer 2000): 217.

  Similar effects, moreover, govern the more recent history of technological innovation, including through the present. The rapid growth and contours of industrial production in the nineteenth and twentieth centuries were fundamentally shaped by the availability of ready and abundant sources of fossil fuels and also of ready and capacious sinks for the by-products of burning them. And twenty-first-century industrial technologies, it is already clear, will be powerfully influen
ced by the draining of the sources and especially the overflow of the sinks. These influences penetrate the details of the technologies developed in each era, contributing, for example, to the dominance of the internal combustion engine over electric alternatives in the twentieth century and the comeback of electric engines in the twenty-first. See Rebecca Matulka, “The History of the Electric Car,” Department of Energy, September 2014, www.energy.gov/articles/history-electric-car.

  dominated by industrial machines: For an effort to identify the sources of wealth in several countries over the past three centuries, see Thomas Piketty and Gabriel Zucman, “Wealth-Income Ratios in Rich Countries 1700–2010,” 6, Figures 9–12, Figure 15, www.parisschoolofeconomics.com/zucman-gabriel/capitalisback/PikettyZucman2013WP.pdf. Piketty and Zucman count slaves as capital—in effect as complements to land—but expressly decline to include the human capital of free workers in their calculations. Their data, however, support the view that the share of total wealth attributable to this human capital has grown in the past two centuries: human capital is in effect the present discounted value of future labor income, and Piketty and Zucman report that between 1820 and 2010, both UK and French national incomes slowly and occasionally unsteadily, but nevertheless distinctly, shifted away from capital and toward labor.

  Between 1811 and 1911: This work is based on data provided through www.VisionofBritain.org.uk and uses statistical material which is copyright of the Great Britain Historical GIS Project, Humphrey Southall, and the University of Portsmouth.

  The London figures report the numbers for the London Government Office Region, Current Total Population. The Manchester figures report the numbers for Greater Manchester, Total Population, Now. The Birmingham figures report the numbers for the West Midlands, Total Population, Now. And the Liverpool figures report the numbers for Merseyside, Total Population, Now. The data are available at www.visionofbritain.org.uk.