Focus on equality of opportunity, not outcomes

By Lawrence Summers
July 15, 2012

Even if the process of economic recovery proves protracted, the American economy will eventually recover, and cyclical issues will cease to dominate the economic conversation. It is likely that issues relating to inequality will move to the forefront. There is no question that income is distributed substantially more unequally than it was a generation ago – with those at the very top gaining share as even the upper middle class loses ground in relative terms. Those with less skill, especially men who in an earlier era would have worked with their hands, are losing ground, not just in relative but in absolute terms.

These issues frame an important part of the economic debate in this election year. Progressives argue that widening inequality jeopardizes the legitimacy of our political and economic system. They contend that at a time when the market is generating more inequality, we should not be shifting tax burdens from those with the highest incomes to the middle class, as has taken place over the last dozen years. And while they recognize that Steve Jobs earned his billions providing great value to consumers and making a substantial contribution to the American and global economies, they also point out that the social value associated with the activities giving rise to many other fortunes, especially in the financial sector, is less apparent.

Conservatives argue that in a world where everything is increasingly mobile, high tax rates run more risk of driving businesses and jobs overseas than they once did. They point out the central role of entrepreneurship in advancing economic growth and note that since most new ventures fail, the returns of success have to be very large if entrepreneurship is going to flourish. They take umbrage at the suggestion implicit in some political rhetoric on inequality that there is something wrong with success on a grand scale. And they worry that policy measures taken to directly combat inequality will have perverse side effects.

Unfortunately, the points on both sides of the argument have considerable force. While I support moves to make the tax system more progressive, the reality is that inequality is likely to remain high and rising even in the face of all that can responsibly be done to increase tax burdens on those with high income and redistribute the proceeds. A variety of measures such as allowing unions to organize without undue reprisals and enhancing shareholders’ role in setting executive pay are desirable. But they are unlikely even to hold at bay the trend toward increasing inequality.

Where does this leave the public policy agenda? The track record around the world of populist policies motivated by inequality concerns is hardly encouraging. Equally, passivity in the face of dramatic economic change is unlikely to be viable. Perhaps the focus of debate and policy needs to shift from a focus on inequality in outcomes, where attitudes divide sharply and there are limits to what can be done, to a focus on inequalities in opportunity. It is hard to see who could disagree with the aspiration to equalize opportunity or fail to recognize the manifest inequalities in opportunity today.

By definition, the number of children not born into the top 1 percent who move into the top 1 percent must equal the number of children born into the top 1 percent who move out of it over their lifetime. So a serious program to promote equal opportunity must both seek to enhance opportunity for those not in wealthy families and to address some of the advantages currently enjoyed by the children of the fortunate.

By far the most important step that can be taken to enhance opportunity is to strengthen public education. For the last decade we have focused on assuring that no child is left behind, and this effort must continue. But if we are to assure that everyone has a real chance for great success, we must also make certain that every child in public school can learn as much and go as far as his or her talent permits. This means judging schools on measures beyond simply the fraction of students who exceed some minimum. Over the last 40 years the nation’s leading universities have, with the strong encouragement and support of the federal government, made a major effort to recruit, admit, support and graduate minority students. These efforts will and should continue. But as things stand, a minority youth with strong board scores is considerably more likely to apply and be admitted to a top school than a low-income student with the same scores. It is time the nation’s leading institutions undertook the kind of focused commitment to economic diversity that they have long mounted for racial diversity.

What about the perpetuation of privilege? Parents always seek to help their children, and it is not realistic to think that privileged parents will do differently. But there is no reason why the estate tax should dwindle relative to the economy at the same time that great fortunes are increasingly dominant. Nor should tax planning techniques that are de facto tax cuts only for those with millions of dollars of income and tens of millions in wealth continue to be legal. It is not realistic to expect that schools and universities that depend on charitable contributions will not be attentive to offspring of their supporters. Perhaps, though, the custom could be established that for each “legacy slot” room would be made for one “opportunity slot”.

These are some ideas for advancing equality of opportunity. There are many more. It is an aspiration that those of every political stripe should share.

 

22 comments

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Is it possible to have equal opportunity WITHOUT equal means? I know that’s the theoretical, but is it actually plausible? As long as money means more to Americans than life there can be no equality of anything – it’ll always be a *cough* measuring competition.

Govt investment drives the frontiers of humanity, and it’s true in America. America invests heavily in military and their military is technologically and ‘pure brute force’ stronger than any military in the world. Imagine if some of that investment went to pushing more humanitarian frontiers how great America could be… The reason for that spiel? Because the frontiers are where the jobs are, not at the underwear factory or the Starbucks.

Posted by CDN_Rebel | Report as abusive

Great article.

The author Larry Summer’s general question, a good one it seems to me, is, What is the wisest public policy for our political and economic system?

But this cannot be addressed until we first define which grouping of humans are we talking about.

Do you mean a political and economic system designed to improve the livelihoods of Americans? Shall we aim for equality of opportunity for Americans viz-a-viz each other? Or is it a large aggregation of humans we are talking about? There’s a big difference.

If the aggregation of humans is defined as Americans, then the historical evidence is clear (for hundreds years, even before the American revolution) that immigration is in the clear interest of the wealthy, because it drives down wage rates and drives up rents.

And immmigration gravely harms the lower classes of Americans for the same reason. American rents today are increasing rapidly. They would be sharply lower without the recent high levels of immigration. And to most lower class Americans, rent is by far their greatest financial challenge, every month.

I really like this article by Larry Summers. But nowhere can I tell whether the question at hand, What is the wisest public policy for our political and economic system? — pertains to us as Californians, or us as Americans, or us as humans on Earth.

In each aggregation, the wise answer we are seeking would be radically different. In other words in whose interest are we talking about here?

Posted by AdamSmith | Report as abusive

Third world nations tend to wealth concentrated at the top because there is no industries employing the below. We have been de-industrializing for decades. Free trade rarely works for high wage nations for long.

Posted by SamuelReich | Report as abusive

Making money overseas or through importing is a characteristic of third wold nation’s upper class. We have been outsourcing and in other ways de-industrializing for decades. Third world nations tend to have wealth concentrated at the top because there is no industries employing the below

Posted by SamuelReich | Report as abusive

Making my living independently without family support for over 30 years after schooling, my conclusion is men are not born equal. We will live a happier life if we can accept this inequality as normal social phenomenon. My present attitude is to work as hard as I can and never give up without bothering whether the result is successful or not.

A very old Chinese saying ‘le tian zhi ming’ means ‘submit to the will of heaven and be content with one’s lot’.

Posted by Kailim | Report as abusive

And how, pray tell, can we assess how equal opportunity is, without assessing the outcome?

I believe all people are of equal worth, and that given equal opportunity, will get equal outcome.

Mr Summers, obviously, doesn’t

Posted by Urban_Guerilla | Report as abusive

If you haven noticed tuition at state universities have moved far away form the free and low model. Also a large part of the student body is from overseas. They now have a different mission than educating the lower classes. In addition public education at the lower levels do not work as well as those overseas. We allow industries that employ teenagers to exist upping drop out rates and lake of study time. Outsourcing and de-industrialization reduce skills further. No skills means lack of competitiveness on tthe world markets.

There use-to be high inheritance taxes and good public education to fight inequality as well as industrial growth to raise labor demand. High inheritance taxes can be used to support free state universities. Federal aid to state universities should be based on the state universities having no or very low fees for citizens and being 90% us citizen student body. The for profit schools should be getting the foreign students.

In short de-industrialization, dysfunctional education system, lack of support for higher education of low income locals, low inheritance and flatter taxes taxes all mean
wealth concentration and skill concentration on top.

Posted by SamuelReich | Report as abusive

Dr. Summers would have us believe that the answer to our economic woes lies with government economic policy. What he doesn’t focus on is that we are currently sliding into a protracted recession that could easily be with us for a decade or more. Government policy is largely responsible for the deterioration of the American economy over the last 30 plus years. Our debt levels are well beyond what is sustainable and when interest rates begin their inevitable rise, our living standard will fall proportionately.
The notion that a little more wealth redistribution will fix everything is just cynical politics. The sad truth is there just aren’t enough rich people to make it practical. Maybe we should begin to confiscate the assets of the rich. Only then might we see how little it matters.
Decades of a high living standard has given rise to mass complacency. As a society we believe we are entitled to a decent existence. Food, shelter, clothing, a confortable retirement and now health care are considered basic rights irrespective of cost or one’s contribution to society. At some point, we will re-examine this notion of entitlement and perhaps then the healing can begin.

Posted by gordo53 | Report as abusive

People do NOT have equal abilities. Thus there will always be different outcomes and differences in economic goods.

Socialism tries to change this, but it does not work. Instead, socialism causes everybody to have less.

Government is losing its ability to affect the economy. Soon, it will no control over the economy.

Only the ignorant and loser concentrate on equality of results.

The facts no one wants to read.

Posted by ALLSOLUTIONS | Report as abusive

Flat tax. everybody pays the same percentage, rich poor all. no loopholes, no getting out of it.

Posted by zotdoc | Report as abusive

@ALLSOLUTIONS “…only the ignorant and loser concentrate on equality of results…” OK, whatever you say, skippy. You got it all worked out. LOL

Dr Sumers: “..the reality is that inequality is likely to remain high and rising even in the face of all that can responsibly be done to increase tax burdens on those with high income and redistribute the proceeds.” Spoken like a true Ivy League SOB.

Posted by krimsonpage | Report as abusive

Summers stipulates that we will continue to have highly unequal outcomes no matter what, but fails to explain why. He seems to have fallen for a number of modern shibboleths that even cursory examination proves to be unfounded. But the underlying assumption seems to be that talented people won’t cough up their creative output without the chance to get filthy rich. It seems that rich folks need to be given more money in order to get motivated to work, while poor folk need to have money taken away in order to get motivated. And where DID this idea come from that our system MUST include opportunities for obscene riches in order to obtain the benefits of our best and brightest? If we take a look at the innovations that have really had a positive impact on our lives since, say, WWII, there’s little evidence that it comes from entrepreneurship. Who got filty rich inventing the following: the stored program computer? The transistor? The integrated circuit? Modern computer operating systems, modern computer programming languages? Windows user interfaces? The mouse? Ethernet? A little thing called the Internet? The cellphone? The World Wide Web? To my knowledge, all of these ideas were born in research labs (some government, some private) staffed by very talented people with no opportunity for getting filthy rich. They did have very nice jobs – solid upper middle class incomes and great benefits that made their lives both comfy and secure, and a work environment that said “go dream your dreams and see what you come up with”. THIS is what spurs innovation. Entrepreneurship just as often breeds info-mercials and used car salespeople as useful things such as Google or smart phones. So please tell me again why we need wildly unequal outcomes?

Posted by Sanity-Monger | Report as abusive

Growing inequality which merely reinforces current elites must be stopped.

The most obvious way to do this is to take back the right of ethnic and racial groups to choose their own leaders and their own social structure. Our “united” Government is simply not in the interest of the population and has failed in its purpose, which was to “unite” us, not to “conquer” us. But it behaves like a conquerer rather than a representative. It is alien, both above and beyond us in its own view.

As long as we each serve foreign groups indifferent to the quality of our lives, we will be subservient peoples. Only independence offers us the hope of freedom.

Posted by usagadfly | Report as abusive

Only an Ivy League Liberal could take a good concept like equality of opportunity and turn it into some kind of wealth redistribution scheme. People in this country can already rise to the level of their abilities, if they want to work for it.

Attempting any kind of “equal outcomes” (including this one) inevitably leads to everything going down to the least common state. Like combining hot and cold water, the result is lukewarm and not very appetizing to drink. In terms of economics, it never enhances lives; it only makes all equally mediocre.

Posted by stevedebi | Report as abusive

Poor Summers, a perfectly balanced and thoughtful piece of writing, yet most of the comments are negative rants lol

Remind me of this story:
http://www.storyarts.org/library/aesops/ stories/boy.html

Since you wanted equal outcomes so much in the past, now you change to equal opportunity, most people wouldn’t believe you lol

Posted by trevorh | Report as abusive

Ok, I’m not accusing Summers of being a liar like the boy in the story, but for some reason whenever I see a liberal academic elite, sheep comes to my mind.

Especially when it comes to liberal academic economists, it’s a whole flock of sheep far into the horizon. An excellent sleep aid!

Posted by trevorh | Report as abusive

Sometimes little things mean a lot.

I’ve noticed that some of the columnists at Reuters set their reader comments to be moderated, with a long time delay. A sign of excess caution, or pusillanimity, on the part of such columnists, it seems to me. Not very attractive in anybody.

Larry Summers, on the other hand, lets his readers’ comments post quickly, without moderation. To me this signifies both self-confidence and courtesy on his part.

I don’t agree always with his opinions, but I do appreciate this characteristic in any person or writer.

Posted by AdamSmith | Report as abusive

Has Larry taken up the cross ? from economist to preacher

Posted by whyknot | Report as abusive

If I remember correctly, Larry, the policies your colleagues (Martin Feldstein, Glenn Hubbard and other like-minded individuals) advocated were a great contributing factor to the situation we are in. I remember watching a documentary that interviewed Martin Feldstein and Glenn Hubbard. When they were confronted about being compensated generously for changing policy to favor the banks and financial institutions they either froze up or got angry at the interviewer. For all who read this post, take a look at the documentary “Inside Job” created in 2010. No, it’s not about 9/11. It’s about the people and companies who caused the crash and how they did it. It also paints a nice picture of how a few Harvard personnel are willing to skew or violate their ethics for money.

Posted by Obsilutely | Report as abusive

The article says ‘By far the most important step that can be taken to enhance opportunity is to strengthen public education.’ There’s only so much that government and policy can do here.

Arguably the most significant factor in a child’s performance in school is family influence. The plain fact is emphasis on education varies greatly from family to family. I live in an area with a fair number of Asian families, and they tend to push their kids very hard to excel in school. Many high income families have a similar attitude. Kids from these families tend to do well in school, get into top universities, and eventually into high paying professions.

The socialists want to ‘fix’ the problem via the tax code. Yeah, that oughta work…

Posted by jambrytay | Report as abusive

The key take-away from the article is:
” Over the last 40 years the nation’s leading universities have, with the strong encouragement and support of the federal government, made a major effort to recruit, admit, support and graduate minority students. These efforts will and should continue. But as things stand, a minority youth with strong board scores is considerably more likely to apply and be admitted to a top school than a low-income student with the same scores. It is time the nation’s leading institutions undertook the kind of focused commitment to economic diversity that they have long mounted for racial diversity.”
What I am “hearing” in this remark is that if you are “low-income” but “not minority” you are the victim of discrimination, though Summers dances around that point. Why exactly are “low-income” but “not minority” with strong board scores not “likely to apply and be admitted to a top school.”

Posted by bluepanther | Report as abusive

What remains of the equality debate aside redistribution ?

2012 has brought a rarity: a very open, spectacular – by all counts – negotiation over redistribution with all sides [givers and takes, that is] involved from legally equal and de facto balanced EU membership positions. A collective bargain along the same lines shouldn’t be any less interesting. Neither is making the case for the overwhelming predominance of normative redistribution in the public sphere of these topics. The intermediation of redistribution is making plenty of news; it leaves the impression of missing the point, by now.

Posted by A.V | Report as abusive