Capital in the Twenty-First Century (84 page)

Furthermore, no matter how the proceeds of growth are allocated among different needs,
there remains the fact that once the public sector grows beyond a certain size, it
must contend with serious problems of organization. Once again, it is hard to foresee
what will happen in the very long run. It is perfectly possible to imagine that new
decentralized and participatory forms of organization will be developed, along with
innovative types of governance, so that a much larger public sector than exists today
can be operated efficiently. The very notion of “public sector” is in any case reductive:
the fact that a service is publicly financed does not mean that it is produced by
people directly employed by the state or other public entities. In education and health,
services are provided by many kinds of organizations, including foundations and associations,
which are in fact intermediate forms between the state and private enterprise. All
told, education and health account for 20 percent of employment and GDP in the developed
economies, which is more than all sectors of industry combined. This way of organizing
production is durable and universal. For example, no one has proposed transforming
private US universities into publicly owned corporations. It is perfectly possible
that such intermediary forms will become more common in the future, for example, in
the cultural and media sectors, where profit-making corporations already face serious
competition and raise concerns about potential conflicts of interest. As I showed
earlier when discussing how capitalism is organized in Germany, the notion of private
property can vary from country to country, even in the automobile business, one of
the most traditional branches of industry. There is no single variety of capitalism
or organization of production in the developed world today: we live in a mixed economy,
different to be sure from the mixed economy that people envisioned after World War
II but nonetheless quite real. This will continue to be true in the future, no doubt
more than ever: new forms of organization and ownership remain to be invented.

That said, before we can learn to efficiently organize public financing equivalent
to two-thirds to three-quarters of national income, it would be good to improve the
organization and operation of the existing public sector, which represents only half
of national income (including replacement and transfer payments)—no small affair.
In Germany, France, Italy, Britain, and Sweden, debates about the social state in
the decades to come will revolve mainly around issues of organization, modernization,
and consolidation: if total taxes and social spending remain more or less unchanged
in proportion to national income (or perhaps rise slightly in response to growing
needs), how can we improve the operation of hospitals and day care centers, adjust
doctors’ fees and drug costs, reform universities and primary schools, and revise
pension and unemployment benefits in response to changing life expectancies and youth
unemployment rates? At a time when nearly half of national income goes to public spending,
such debates are legitimate and even indispensable. If we do not constantly ask how
to adapt our social services to the public’s needs, the consensus supporting high
levels of taxation and therefore the social state may not last forever.

Obviously, an analysis of the prospects for reform of all aspects of the social state
would far exceed the scope of this book. I will therefore confine myself to a few
issues of particular importance for the future and directly related to the themes
of my work: first, the question of equal access to education, and especially higher
education, and second, the future of pay-as-you-go retirement systems in a world of
low growth.

In all countries, on all continents, one of the main objectives of public spending
for education is to promote social mobility. The stated goal is to provide access
to education for everyone, regardless of social origin. To what extent do existing
institutions fulfill this objective?

In
Part Three
, I showed that even with the considerable increase in the average level of education
over the course of the twentieth century, earned income inequality did not decrease.
Qualification levels shifted upward: a high school diploma now represents what a grade
school certificate used to mean, a college degree what a high school diploma used
to stand for, and so on. As technologies and workplace needs changed, all wage levels
increased at similar rates, so that inequality did not change. What about mobility?
Did mass education lead to more rapid turnover of winners and losers for a given skill
hierarchy? According to the available data, the answer seems to be no: the intergenerational
correlation of education and earned incomes, which measures the reproduction of the
skill hierarchy over time, shows no trend toward greater mobility over the long run,
and in recent years mobility may even have decreased.
²⁶
Note, however, that it is much more difficult to measure mobility across generations
than it is to measure inequality at a given point in time, and the sources available
for estimating the historical evolution of mobility are highly imperfect.
²⁷
The most firmly established result in this area of research is that intergenerational
reproduction is lowest in the Nordic countries and highest in the United States (with
a correlation coefficient two-thirds higher than in Sweden). France, Germany, and
Britain occupy a middle ground, less mobile than northern Europe but more mobile than
the United States.
²⁸

These findings stand in sharp contrast to the belief in “American exceptionalism”
that once dominated US sociology, according to which social mobility in the United
States was exceptionally high compared with the class-bound societies of Europe. No
doubt the settler society of the early nineteenth century was more mobile. As I have
shown, moreover, inherited wealth played a smaller role in the United States than
in Europe, and US wealth was for a long time less concentrated, at least up to World
War I. Throughout most of the twentieth century, however, and still today, the available
data suggest that social mobility has been and remains lower in the United States
than in Europe.

One possible explanation for this is the fact that access to the most elite US universities
requires the payment of extremely high tuition fees. Furthermore, these fees rose
sharply in the period 1990–2010, following fairly closely the increase in top US incomes,
which suggests that the reduced social mobility observed in the United States in the
past will decline even more in the future.
²⁹
The issue of unequal access to higher education is increasingly a subject of debate
in the United States. Research has shown that the proportion of college degrees earned
by children whose parents belong to the bottom two quartiles of the income hierarchy
stagnated at 10–20 percent in 1970–2010, while it rose from 40 to 80 percent for children
with parents in the top quartile.
³⁰
In other words, parents’ income has become an almost perfect predictor of university
access.

This inequality of access also seems to exist at the top of the economic hierarchy,
not only because of the high cost of attending the most prestigious private universities
(high even in relation to the income of upper-middle-class parents) but also because
admissions decisions clearly depend in significant ways on the parents’ financial
capacity to make donations to the universities. For example, one study has shown that
gifts by graduates to their former universities are strangely concentrated in the
period when the children are of college age.
³¹
By comparing various sources of data, moreover, it is possible to estimate that the
average income of the parents of Harvard students is currently about
$
450,000, which corresponds to the average income of the top 2 percent of the US income
hierarchy.
³²
Such a finding does not seem entirely compatible with the idea of selection based
solely on merit. The contrast between the official meritocratic discourse and the
reality seems particularly extreme in this case. The total absence of transparency
regarding selection procedures should also be noted.
³³

It would be wrong, however, to imagine that unequal access to higher education is
a problem solely in the United States. It is one of the most important problems that
social states everywhere must face in the twenty-first century. To date, no country
has come up with a truly satisfactory response. To be sure, university tuitions fees
are much lower in Europe if one leaves Britain aside.
³⁴
In other countries, including Sweden and other Nordic countries, Germany, France,
Italy, and Spain, tuition fees are relatively low (less than 500 euros). Although
there are exceptions, such as business schools and Sciences Po in France, and although
the situation is changing rapidly, this remains a very striking difference between
continental Europe and the United States: in Europe, most people believe that access
to higher education should be free or nearly free, just as primary and secondary education
are.
³⁵
In Quebec, the decision to raise tuition gradually from
$
2,000 to nearly
$
4,000 was interpreted as an attempt to move toward an inegalitarian US-style system,
which led to a student strike in the winter of 2012 and ultimately to a change of
government and cancellation of the decision.

It would be naïve, however, to think that free higher education would resolve all
problems. In 1964, Pierre Bourdieu and Jean-Claude Passeron analyzed, in
Les héritiers,
more subtle mechanisms of social and cultural selection, which often do the same
work as financial selection. In practice, the French system of “grandes écoles” leads
to spending more public money on students from more advantaged social backgrounds,
while less money is spent on university students who come from more modest backgrounds.
Again, the contrast between the official discourse of “republican meritocracy” and
the reality (in which social spending amplifies inequalities of social origin) is
extreme.
³⁶
According to the available data, it seems that the average income of parents of students
at Sciences Po is currently around 90,000 euros, which roughly corresponds to the
top 10 percent of the French income hierarchy. Recruitment is thus 5 times broader
than at Harvard but still relatively limited.
³⁷
We lack the data to do a similar calculation for students at the other grandes écoles,
but the results would likely be similar.

Make no mistake: there is no easy way to achieve real equality of opportunity in higher
education. This will be a key issue for the social state in the twenty-first century,
and the ideal system has yet to be invented. Tuition fees create an unacceptable inequality
of access, but they foster the independence, prosperity, and energy that make US universities
the envy of the world.
³⁸
In the abstract, it should be possible to combine the advantages of decentralization
with those of equal access by providing universities with substantial publicly financed
incentives. In some respects this is what public health insurance systems do: producers
(doctors and hospitals) are granted a certain independence, but the cost of care is
a collective responsibility, thus ensuring that patients have equal access to the
system. One could do the same thing with universities and students. The Nordic countries
have adopted a strategy of this kind in higher education. This of course requires
substantial public financing, which is not easy to come by in the current climate
of consolidation of the social state.
³⁹
Such a strategy is nevertheless far more satisfactory than other recent attempts,
which range from charging tuition fees that vary with parents’ income
⁴⁰
to offering loans that are to be paid back by a surtax added to the recipient’s income
tax.
⁴¹

If we are to make progress on these issues in the future, it would be good to begin
by working toward greater transparency than exists today. In the United States, France,
and most other countries, talk about the virtues of the national meritocratic model
is seldom based on close examination of the facts. Often the purpose is to justify
existing inequalities while ignoring the sometimes patent failures of the current
system. In 1872, Emile Boutmy created Sciences Po with a clear mission in mind: “obliged
to submit to the rule of the majority, the classes that call themselves the upper
classes can preserve their political hegemony only by invoking the rights of the most
capable. As traditional upper-class prerogatives crumble, the wave of democracy will
encounter a second rampart, built on eminently useful talents, superiority that commands
prestige, and abilities of which society cannot sanely deprive itself.”
⁴²
If we take this incredible statement seriously, what it clearly means is that the
upper classes instinctively abandoned idleness and invented meritocracy lest universal
suffrage deprive them of everything they owned. One can of course chalk this up to
the political context: the Paris Commune had just been put down, and universal male
suffrage had just been reestablished. Yet Boutmy’s statement has the virtue of reminding
us of an essential truth: defining the meaning of inequality and justifying the position
of the winners is a matter of vital importance, and one can expect to see all sorts
of misrepresentations of the facts in service of the cause.

Public pension systems are generally pay-as-you-go (PAYGO) systems: contributions
deducted from the wages of active workers are directly paid out as benefits to retirees.
In contrast to capitalized pension plans, in a PAYGO system nothing is invested, and
incoming funds are immediately disbursed to current retirees. In PAYGO schemes, based
on the principle of intergenerational solidarity (today’s workers pay benefits to
today’s retirees in the hope that their children will pay their benefits tomorrow),
the rate of return is by definition equal to the growth rate of the economy: the contributions
available to pay tomorrow’s retirees will rise as average wages rise. In theory, this
also implies that today’s active workers have an interest in ensuring that average
wages rise as rapidly as possible. They should therefore invest in schools and universities
for their children and promote a higher birth rate. In other words, there exists a
bond among generations that in principle makes for a virtuous and harmonious society.
⁴³