Why 'equality of opportunity' in the free market is a myth

 We hear it often, don't we, especially from the neo-liberal right. 'We don't believe in equality of outcome', we believe in 'equality of opportunity', and 'as long as we all get the same opportunities that's all we can do, after that it's what we each make of the opportunities'. The idea is described as 'Social Darwinism', described via a simple Google search as:

Social Darwinists believe in “survival of the fittest”—the idea that certain people become powerful in society because they are innately better. Social Darwinism has been used to justify imperialism, racism, eugenics and social inequality at various times over the past century and a half

But I argue that equality of opportunity is a myth, it has never existed. I have two underlying arguments for this position:

1. The flawed underlying assumptions of the market, and
2. The inevitable bias and prejudice of human nature

The assumptions of the market:

Those who proclaim the power of the market and its efficacy in solving our economic problems I suggest most often do not know let alone understand the underlying assumptions on which their market theory is built. The market concept began life with what is called 'perfect competition'. That is the basis for the market and for it to work, a series of assumptions are made about the world, all founded on a rationalist view of the world, of life, and of society. The assumptions are:

1. Homogeneous product: that is, all producers sell identical products, you cannot tell the difference between an item from producer 1 and producer 1001
2. There are many sellers, in fact so many that the entry or exit of any one producer will have no noticeable impact on total production, and so on price 
3. There are no barriers to entry or exit for any producer 
4. All market participants have perfect knowledge, that is, everyone (both buyers and sellers) knows everything they need to know to participate in the market
5. All resources (physical resources, natural resources, human resources) are perfectly mobile. Pick up your factory building and move it from Tamaki Makaurau to Bluff, shift those 47 whānau from Whanganui a tara to Māwhera, instantly transform the oil refinery to producing flour, you get the picture
6. All producers are price takers, that is, they cannot determine market prices
7. Consumers  have market sovereignty, that is, the choices of consumers send signals to producers that then determine what is produced. So persuasive advertising doesn't exist in this world.

All of these factors ought to mean that there are no power imbalances. Consumers and producers carry equal weight of power. Workers and employers carry equal weight of power. The rich and the poor carry equal weight of power. 

Now, I don't know about you, but I've yet to see any part of the world where all of those assumptions exist, well where any of them exist actually.

Economics then morphs the model to what it calls imperfect competition (also covering the extremes of oligopoly, duopoly, and monopoly), and to the concepts of market failure (presumably those states where the market assumptions begin to break down). The economics of market failure is the real killer. It would for example suggest that government intervention is warranted whenever producers do not meet the full costs of their production, as the market requires all costs to be factored into production if we are to attain 'allocative efficiency' in the market. So economics would espouse 'polluter pays' policies, which would see farmers paying all of the costs for their methane and CO2 emissions, and drivers paying all of the pollution costs of driving their cars. We have entered the dark world of spill over costs or externalities.

I have yet to se the right wing market pundits proclaim such an idea.

We can go a step further and say that the model assumes rational behaviour from all market participants, and that's several hundred years of economic theory right there.

This brings me to the second issue.

Human bias and prejudice:

Regardless of how we are raised, regardless of our world or life experiences, every one of us carries bias and prejudice in our heads. I understand that there is an evolutionary psychology argument that we have evolved to fear difference purely because it might represent a threat to our 'group' and its survival.

In a column in the NZ Listener (January 28-February 3 2023) Marc Wilson in a Psychology column titled 'Us and them' wrote:

"According to the American Psychology Association's APA Dictionary of Psychology 'prejudice' has two closely related meanings. The second is shorter: "any preconceived attitude or view, whether favourable or unfavourable." The lengthy first definition feels like a more specific elaboration of the second: that prejudice comprises negative emotional, cognitive, and behavioural attitudes towards people based upon their membership of some group. Racism then is prejudice based on racial grouping etc."

I suggest that for those with sufficient money to live comfortably, there may well be a prejudice against those who struggle financially. "Lazy ***'s", "Need to get off their """"s", "I managed to get rich from hard work, there's no reason why they can't do the same".. I suspect we've heard them all. I wrote this poem when thinking about this issue:

So what? The free market is a nonsense. There is no such thing in the real world, so the idea that the free market gives the best allocative solutions to our economic problem is a nonsense. Further, all societies are riven with bias and prejudice. It's an implicit part of the 'human condition'. This means that everyone does NOT get a ' fair suck of the sav', everyone does NOT have equal opportunity.

In short, thinking that all we have to do is give everyone equal opportunity is an utter nonsense.

We come back to the ultimate question: what sort of society do we want to live in? I believe it was Gandhi who was reputed to have said "we can judge the quality of a society by the way it treats its most vulnerable members"? 

Putting our faith in the free market will, I reckon, result in inequality as everyone does NOT get equal opportunity. The free market as portrayed in text books is a myth, yet all too often those on the right worship it as a 'utopia', holding firm to the belief that it actually exists. 

Equal opportunity is. a'myth'. What sort of society do we want to live in?

Neo-Liberalism, the free market and religion.. yeah right

There are those who state their opinions as fact. And then there are those who base their opinions on facts. I like to think that I am one of the latter. I have for quite some time been sitting on a series of views around neo-liberalism, free markets, and Christianity. Recent events on the political campaign trail have finally prompted me to go back to the notes I drafted some two months ago, and put fingers to keyboard.

This entire discussion of course has to be framed with the clear understanding that we all carry cognitive and emotional biases. Being aware of these may not reduce the degree to which we exercise them, and I am no different. Confirmation bias is perhaps the 'biggie' that we all need to confront, and all too often too few of us do.

That said, let's start with a look at the impact of neo-liberal freee market ideologies. The ideology bases itself largely on the work of Adam Smith that many derive from his book 'An inquiry into the nature and causes of the wealth of nations' (1776) in which he stated:

…THE INVISIBLE HAND…

[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, (my 'bolding') which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society (again, my 'bolding'), and afford means to the multiplication of the species.

The Wealth Of Nations, Book IV, Chapter V, Digression on the Corn Trade, p. 540, para. b 43.

This is has been. taken as an underlying truth by many, a justification for action that is fundamentally selfish in nature. I would restate it this way: 'if we act in our own best interests we generate the best outcomes for everyone else too'.

Underlying theories of economics have been developed within what is termed the neo-classical school of economics. The 'trickle down' theory is one in particular that is often cited by the political right. It goes like this: if wealth is generated amongst higher income earners, or those with more wealth (these two things are different) then as a result of their spending of that additional wealth or income, this income is spread across the economy. Or put another way, if we provide economic largesse for the ealthy, then they will spend it (there seems to be an implication, what's more, that they will know the best way to spend) in a way that it spreads out across everyone else in the economy. It 'trickles down' from higher income earners t lower income earners. It is the subject of a concept called the 'income multiplier', a statistical calculation by which we can even calculate the extent of the increase in GDP that will result form that initial stimulus. The logic is impeccable. Love it. It's a shame it doesn't work. There's a further comment below on this.

The OECD, in a report date back in 2011, agreed that 'trickle down' is flawed, it doesn't actually work. Here it was, as reported in The Washington Post in December 2011. So it seems reasonable to suggest that in fact when you increase the incomes of high income earners, or the wealth of those with greater material wealth what you actually do is... increase the incomes of high income earners, or the wealth of those with greater material wealth. Those less well off receive little of no benefit from that. Interpretation: tax breaks for the wealthy do not actually benefit those less well off.

Keynesian economics even contains an interesting piece of theory about this, called the 'marginal propensity to consume'. That concept goes like this. If each of us is given an additional dollar (the 'marginal' or last dollar) then we will spend a set proportion of it. Those on low incomes will spend a high proportion of that dollar because they are currently struggling to make ends meet, to put food on the table etc, whereas those on high incomes will be motivated to spend less of t because they are already meeting a large proportion of their material needs. The MPC for lo income earners is greater than that for high income earns. So statistically speaking if Government gives an extra dollar to some one below the average wage more of that dollar will be spent back into the economy, so the economy will receive more stimulus than if that same dollar were given to someone on a higher income. Remember that this is likely to be both 'chunky' and messy' in its nature, and operates at the macro economic level. So there may well be individuals in the economy who do not behave this way, but statistically speaking this is what we ought to see. Interestingly, the Keynesian view is that that income multiplier I mentioned above will be greater when a financial stimulus is given to those on lower incomes. The multiplier is the reciprocal of that mpc. 

Then there is the argument that inequality acts as a great incentive for people to strive, to work harder, to be innovative, and this benefits the economy through increased economic growth. Again, the logic seems flawless. Yup, but .. nope., the data says this is not true. Increased inequality appears to reduce economic growth. So with greater inequality we are all worse off, even the wealthy. Here is the OECD repot on that one. 

Finally, the evidence on the impact of the impact of the past 36 years of neo liberal or free market economics in new Zealand is that our distribution of wealth has grown ever greater. We currently have the greatest gap between rich and poor that we have ever had. Here is a study commissioned by NZ Treasury that only spanned the period 1981 to 1996 showing the changes that occurred. 

There are in fact more fundamental flaws in the free market model too, flaws that strict advocates seem oblivious of. The market model makes asries of assumptions in order to work. For example it assumes:

• Perfect knowledge
• Consumer sovereignty, and
• Perfect mobility of resources.

We do not all have perfect knowledge on which to base decisions. I think markets magnify the imbalance of knowledge and power, because producers tend to have more knowledge than consumers. This is not a level playing field. This is one of the issues that lies behind the concept of market failure, and hence the need for government intervention. in markets. Perhaps one of the simplest examples of this is the need for consumer laws (our Consumer Guarantees Act, and our Fair Trading Act, to name just two). These exist because there is a power imbalance.

Another example of market failure: with goods that we term Merit goods, and Public goods (capitalised because those are proper nouns, names for the goods in economic theory), if left to the market the market will under provide. That is, you'll get less of these goods than is in the economy's best interests. Education is just one such Merit Good'. his isa classic argument for NOT using market provision for schools, and for not using a voucher system, I have written elsewhere about the impact of market provision on education outcomes in a professional blog post titled 'Why school competition isn't optimal'. These approaches further embed institutional racism at its worst.

So all in all, the free market economy has not served New Zealanders as well as we might like to think. My own interpretations based on this data are:

• Economic growth has been less than it might have been, because of the growing disparity between rich and poor
• We have continued to assume that discredited theories of trickle down and incentive are true when they are demonstrably not so
• We have created a growing underclass of poor, with what I would interpret to be a less economically just society. My suspicion is that this underclass is overly represented with Māori and Pasifika peoples.

Now, here's the thing that intrigues me. I am at a loss to know how one can be both a right wing, neo-liberal, free market, supporter, and also a Christian. I apologise to those of other faiths, as the Christian lens is the only one through which i can view this. My suspicion here is however that other faiths might well see things similarly. While not an overtly practising Christian, I was raised in a Christian environment, and learnt much about the faith and its values while working for 15 years in an independent school with an Anglican ethos. 

My understanding is that Christian values would have us:

• Look after those less well off than ourselves
• Protect the weak
• Use our actions rather than our words to support those less well off than ourselves.
• Treat others with aroha/love, and respect .. basically, whakawhanaungataga, manaakitanga

In my confusion, and my desire to clarify my thinking on this, I asked a friend and former colleague who is an Anglican minister what I am missing here. I could not understand how one could support the right, and also be a Christian. I hd put that down to my own limited knowledge of Christianity. He commented that I wasn't getting this wrong at all. He agreed. He suggested that had Christ been alive today, he would probably have been a 'rampant socialist'.

So in my opinion the impacts of the free market are such that they run counter to the values that ought to be a central part of Christianity (and, I suspect) of all of the other great faiths.

I cannot for the life of me understand how anyone professing to be a Christian can also support the political right, and the free market. Either they don't understand the free market, or they are oblivious to the evidence, or they don't understand Christian values, or they are being disingenuous, or any combination of these factors. That's my opinion.

Secondary schools and the work force

... a class-based theory of how and why we have a fundamental labour force imbalance.

Introduction

In this post I want to describe some thinking that has been 'brewing' in my mind for some time about the work of secondary schools in New Zealand for the past four or five decades.

My parents were 'great depression' children. They were born in the '20's (the 1920's) and grew up in the 30's. These were times when unemployment was high, when families struggled to feed their children, when children went to school without food or shoes (some of that seems a little too familiar at the moment).  My mother would tell me stories of what it was like to grow up in a working class family at the time, and these were common themes in her stories. This continued into my own childhood, we were a working class family.

The one thing my parents held to be true (if I remember correctly) was the value of education. They did not want us to lead the lives that they had lead. They believed that better eduction was the key to avoiding the poverty that they experienced as children, and so they pushed us to attain the highest possible levels of education that we could. Their own experience had been to be forced to leave school at the end of their Standard 6 (Year 8 in our terms) in order to get a job to help support their families (or maybe to be less of a burden on those families). They suggested that this was common at the time.

To them, a university education was the ultimate, and they pushed us in that direction. Now for our generation they were probably right. I gained a university degree and went on to teach, beginning my career in 1979. We were a generation of new teachers who possibly came from those working class origins, the product of a generation who held this aspirational belief in a university education.

I 'm not suggesting that these attitudes were unique to working class parents (whatever that may mean), but I think that they had a significant impact on attitudes towards education.

This is relevant background to what I believe to be the root cause of a significant labour market condition in  New Zealand.

Theory

The over-riding value was (and still is) that the higher the education the better. A university degree is the best education that anyone can aspire to, the best that money can buy. And here is the root cause of the problem. As a child of depression generation parents, I too grew up to believe that the higher the level of education the better. When I began my teaching career I took this belief into the profession with me, and for a while continued to perpetuate this view with my own students. I would counsel students to aspire to a university education. There was an unintended consequence of our beliefs. It created a 'hierarchy' of jobs and activities.

This situation has been exacerbated by the EFTS based funding formula for universities. More students means more funding. This incentivises the recruitment of more and more students.

In my opinion we now have too many people equipped with inappropriate degrees, and too few people trained in what 30 years ago might have been called the trades. The result is that I pay anything between $100 and $200 an hour for a plumber, or an electrician or .... you get the picture. These charge-out rates to some degree represent a skills shortage, one which we have seen exacerbated with the massive increase in housing demand driven by Auckland's growth and Christchurch's rebuild.

What am I theorising as the root cause? The desire of a generation of working class parents to ensure that their children would not be subject to the deprivations that they had experienced, and the belief of that generation that education (well, a university education actually) was the key.

Since the 1970s ( and maybe earlier) we have had ready access to university, with the belief that a university education is the right of every child. I support the belief that everyone should be able to access a university education. With regard to universal access we still have much to do of course. Cultural and socio0economic barriers mean that some groups do not actually have the same opportunities as others. The 'tail of under achievement' is something that we need to address.

I am challenging the belief that it is in society's best interests that everyone should have a university education. The introduction of tuition fees has not slowed the growth in university rolls. Nor until now perhaps has the increase in the level of the bar required to access university.

The 2015 drop in the numbers of New Zealand students gaining a UE qualification is probably the result of the latest lifting of that bar. The lifting of the bar took the form of requiring students to achieve Level 3 NCEA in addition to a literacy and numeracy component, and reasonable achievement (14 credits) in each of three level 3 subjects. Universities have found that students who entered their halls without Level 3 NCEA tended to have a much higher failure rate in their first year.

This is in my opinion a far better rationing mechanism than the imposition of ever growing fees. The growth in fees disenfranchises those from the very working class from which people like me have sprung. If instead the bar is created in terms of ability, with subsequent lowering of costs to students gaining entry,  then perhaps we are more likely to get the most useful populations of university students from the perspective of New Zealand society, and the economy.

So, summarising, I am suggesting that we have had a generation of secondary school teachers who had come from  a 'working class' background who have pushed students into a university education. The result is that we have had too many students attend universities and too few take up alternative forms of tertiary training/education. The result is that we have a serious labour market imbalance. We also have a university system that has grown beyond what we can support. Instead of funding high level research, and the education of our academic best, we fund a much larger population of university students who take on large debt for possibly little gain. We also have a shortage of people wiling and able to work in trades, and other non academic work. Arguably we may also have a less entrepreneurial society than we need.

Evaluating the argument.

1. Where's the data? Is it true that a majority of secondary school teachers recruited in the 60's and 70's came from 'working class' backgrounds?
2. What were school leaving ages like ion the '30's and 40's? Was it in fact a typical experience, or something only forced on a relative few?
3. Were real wage differentials large enough in the 60's and 70's to justify the belief that a university education would make someone better off than say a trades apprenticeship?
4. How significant is the current wage differential? If it is real, does it really represent a longer term shortage in labour markets, or is it merely a short term phenomenon?

This post is the result of some thinking. Research may already have been done that might prove or disprove the 'thesis'.

But .. I was just thinking.