23 March 2015

Nepotism, Merit, And The Perils Of Underpaying People In Important Jobs

I estimate that the son of an N.B.A. player has about a one in 45 chance of becoming an N.B.A. player. Since there are far more N.B.A. slots than Senate slots, this is only about an 800-fold edge. . . . 
An American male is 4,582 times more likely to become an Army general if his father was one; 1,895 times more likely to become a famous C.E.O.; 1,639 times more likely to win a Pulitzer Prize; 1,497 times more likely to win a Grammy; and 1,361 times more likely to win an Academy Award. Those are pretty decent odds, but they do not come close to the 8,500 times more likely a senator’s son is to find himself chatting with John McCain or Dianne Feinstein in the Senate cloakroom.
From the New York Times Op-Ed page via Marginal Revolution.

The ratio for Presidents is 1.4 million times greater, and for Governors is about 6,000 times greater, although both involve very small base numbers.  There was one father-son set of Nobel Prize winners.

It is fundamental and natural that children share many of their parents strengths and weaknesses due to genetics and their upbringing.  As a first order approximation, the assumption that a son will be as successful in life as his father is a more accurate mirror of the world than the assumption that a son's success is completely uncorrelated to his father's success.*

We would like to think that our society is highly meritocratic.  And, for most of human history, society was less meritocratic than it is today.  But, parents continue to have a significant impact on a son's socioeconomic success that is not merely attributable to merit or luck.

The examples of athletes and musicians above both involve narrow, highly hereditary traits in fields of endeavor known for being quite meritocratic.  So, they represent something close to an upper limit on the extent to which merit can help you achieve, although even in those fields, outright nepotism and other advantages a parent in a particular field can confer on a child (like mentoring and advice and networking) probably confer some benefits beyond mere personal merit.

Nepotistic advantage in the economic world should hardly surprise us.  Children generally inherit their parent's wealth when their parents die, and receive substantial economic support from their parents during their lives.  Mainstream economic theory assumes that one of the main reasons that people who aren't going to spend the money they've already earned in their lives still work is to pass wealth on to their children.  And, people wouldn't provide their children with economic support and inheritances if they didn't genuinely believe that their children are better off as a result.

But, the extreme edge a parent can confer on a son in the military, which is often perceived as a particularly meritocratic institution, is more notable.  We expect politics to be rather corrupt.  We are surprised, in contrast, to see nepotism play such a powerful role in the military.

Then again, historically, all political leaders were also warriors, a circumstance that continued, at least, into the late middle ages in most of Europe, and remains part of the tradition of, for example, the British monarchy.  And, during the era when all political leaders were warriors, the extent to which the hereditary principle governed political succession was much greater than it is in modern democracies run by people who are, at least currently, civilians.

It isn't obvious how this plays out in the modern bureaucratized military, although one can guess at how this comes to be.

One important factor comes from varying personal assessments of the desirability of being a top military officer among people who are qualified to do the job.  Top military officers are paid profoundly less than civilian top managers in the private sector with comparable authority.  People motivated by money who have the talent to be generals in the military leave to become business chiefs instead.  Only people who value the prestige of a high military office more than money stick it out to become generals, and family influences drive that motivation.

Thus, one of the main drivers of nepotism in the military, as in many circumstances where we encounter corruption, is that the purely economic compensation that a sufficiently talented person can obtain by performing the job is less than could be secured elsewhere.

This is also probably one of the drivers of nepotism in politics.  Elected officials are rarely paid well in comparison to the power the wield and the extent to which they are exceptional relative to members of the general public, particularly in the early phases of the pursuit of elected office that form the minor leagues from which most senior politicians emerge.  Working as a state legislator is a demanding full time job, requires you to raise far more money than you will make at the job to be hired, involve responsibility for sophisticated policy making decisions that entail oversight of billions of dollars, and often pays less than a junior level clerical position or entry level school teaching job.

Only those people who value power much more than personal economic wealth (at least as so wealthy that they need not concern themselves with making a living or have been raised to have very long time horizons for cashing in with personal economic wealth) become career elected officials.  The values that a child of a politician learns greatly influences how that child evaluates power relative to money as an objective in life.

The fits the observation that the single most powerful means of culling potential elected office holders is the decision of particular potential candidates to run for office or not.  More talented potential elected office holders drop out of contention at this stage than any other.

Of course, in the arena of politics, the way that voters evaluate candidates also plays a part.

Human nature has a strong monarchist predisposition that plays out in the tendency of voters to favor candidates who are part of political dynasties.  Electoral politics do not produce winners on a meritocratic basis.

In part, political dynasties can be rational for the voter in much the same way as political parties are rational for the voter.  Voters are in a poor position to evaluate a candidate's actual merit in politics (a concept that is nebulous anyway in this field of endeavor).  So, voting for someone closely related to someone who has already demonstrated political merit may be the most reliable available proxy for merit that is easily available to them.

It is also worth recalling one of the most notable observations of Milton Friedman in his economic writing aimed at the general public, like his book "Free to Choose": that while there is inequality in both economic power, and in political power, inequalities in political power are usually greater than those in economic power.  Our political theory says that politics should restrain economic inequality, but experience teaches us that politics is often even worse.

After all, in politics, there is a zero sum game and inequality is built into the structure of constitutional government.  Only a handful of people can lead the nation as elected officials.  In contrast, in the economic sphere, the success of one person does not nearly so inevitably have to come about by denying economic rewards to another.  In theory, in a world where many people are highly productive, many people can prosper.  There are about 5,000-10,000 professional elected officials in the United States.  There are far more people who are very wealthy.  There are 3 million people in the top 1%, and 30,000 people in the top 0.01%, an economic stratum limited to people who each have a net worth of dozens or hundreds of millions of dollars or more, making them serious contenders in terms of combined economic and political power with the lower echelons of professional elected officials in the United States, only a handful of whom make more than $250,000 a year.

When we pay public senior officials, elected or otherwise, less than they could make in comparable private sector positions, we do so at our own peril as a nation that would like to be free of corruption.

To conclude, lets circle back to athletes and entertainers.  While the top performers in these fields are well paid, life in the long tail is merger.  The average professional ballet dancer earns less than twice poverty line compensation.  Starving artists are a thing, not just a myth.  Only people who have been raised to truly value excellence in these fields and who have independent financial means are likely to be able to stick it out for the long years of demanding work for little pay that are necessary to eventually have a shot at rising to the top.  So, maybe the world of athletes and entertainers, while meritocratic at the top, isn't as fully meritocratic in the pipeline to those top positions as it might seem, which in turn can explain the extreme nepotism factors in those jobs.

* The gender distinction I make here and that the author makes in the quoted material below, reflect the fact that men and women's paths to socioeconomic success were almost completely different until sometime after 1980 when women who chose not to have children, at least, started to have similar economic prospects to men leaving only a single generation of precedent for them in a world where the rules of socioeconomic attainment for women is still in flux.  The analysis as applied to women is important, but far more complex.

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