The Merriam-Webster dictionary defines merit as follows:

A meritocracy is a system in which those in charge are selected on the basis of their demonstrated merit.

We are often told that our political and economic systems are meritocratic. That those in government have been elected on the basis of merit, that those running our largest businesses are those who have demonstrated the greatest merit, and that those who derive the greatest rewards in society are those who, in various ways, have contributed most to it.

Is this a realistic description of the world in which we live?

Unfortunately not. The argument that we live in a meritocracy is based on three important myths:

1. our ‘meritocracy’ is based on merit;
2. the inequality in our system should not be addressed because it is both fair and moral that everyone should get what they ‘merit’
3. the wealthiest in society truly believe myths #1 and #2.

Myth #1: Our ‘Meritocracy’ Is Based On Merit

The way that power, wealth and status are allocated amongst the members of our society has nothing to do with merit. Whether you look at people or businesses, it is evident that many of those with the most power and the greatest wealth would have negative ‘merit’ if there were any moral component to that word. Conversely, many people who, from a practical and moral perspective, have enormous merit have neither wealth nor power.

Let’s think first about individuals.

In the US, for example, an oncology nurse can expect to earn between $74,000 and $118,000. But each of the key executives of the tobacco company Philip Morris is paid more than $5 million. To believe that people are paid in relation to the good they do for society, we would have to believe that each one of these executives does more good for society by producing, marketing and selling (carcinogenic) cigarettes than 50 oncology nurses do by tending those with cancer.

In the UK, in 2019, the highest-paid CEO was Denise Coates of Bet365 whose take-home pay amounted to £323 million. In addition, she collected around £46 million in dividends from her 50% share in the company. At a time when problem gambling is growing, it is hard to believe that she brings more value to society than 13,000 nurses – but strictly speaking, to believe that we live in a meritocracy, you do have to believe this.

Indeed, if we imagine a world in which tobacco companies and online betting companies had never existed, most people would think that was a far better world than the one we have today. But financially, there is no denying that the owners and managers of these companies are ‘high-value’ people.

And the picture looks the same if we compare the merit of different companies.

In the meritocratic story of how business works, good behaviour is synonymous with good business. If you treat your customers well, they will be more loyal; if you treat your employees fairly they will more than repay it with commitment and creativity; if you contribute to the rest of society, you will be rewarded as a good corporate citizen. In this way, ethical behaviour and competitive advantage are more or less synonymous.

There have been a number of recent initiatives implicitly based on this theory. In the UK, Julian Richer and the CBI have combined to launch a good business charter. In the US, the Business Roundtable persuaded 181 CEOs to sign a pledge which ‘redefined the purpose of the corporation’ from shareholder value maximisation to stakeholder value maximisation. And in both the US and the UK, B-corporations are a kind of certification of ethical practice.

And there are certainly good examples of companies which have both behaved ethically and been successful – not least Julian Richer’s own company, Richer Sounds. The top ten in the UK include: Pukka teas, Neal’s Yard, Triodos, and Ecover.

But if we look at the really successful companies, what do we see? Five very large companies now make up 20% of the market value of the entire S&P 500:  Facebook, Apple, Microsoft, Aphabet(Google) and Amazon. They are all under investigation by House judiciary’s antitrust subcommittee for anti-competitive behaviour. In addition, they all avoid taxes. Amazon is notorious for its treatment of its workers. And Facebook has been reported as being complicit in abuses of democracy. Are these the five most ethical companies in America? I hope not.

So, what is really happening here? In practice, one of the easiest ways for a business to be competitive is to externalise its costs: to pollute without paying the costs of clean-up, to avoid taxes, to underpay staff – and leave the rest of society to pick up the bill for this. And so an ethical business finds itself at a disadvantage when competing with an unethical one. Amazon exemplifies the power of externalisation as a competitive weapon.

At the moment, the playing field is tilted against ethical businesses.

In the real world, what we observe is that market value and moral value (or value to society) are disconnected.

Myth #2: Everyone Should Get What They ‘Merit’

But even if we had a meaningful and objective standard of merit which did in some way relate to moral value, would that mean that it is fair and moral to distribute the wealth of society in the way that we do today?

Let us take intelligence as an analogy. If people’s intelligence reflected their contribution to society and if we had an accurate measure, would that justify the kind of ‘meritocracy’ we have today, with today’s levels of inequality?

Let’s try the experiment. If we distribute wealth in the same proportions as today, but allocating by IQ rather than by actual wealth (so that the top 5% by IQ receive the same wealth as the top 5% by wealth have today), we get this picture.

The average IQ (by definition) is 100. So the average household has a wealth of around £300,000 as today. But of course, 50% of people are below average – and that will be true however hard everyone tries to educate themselves and however hard they work. We will always have 50% with below average IQ.

And if your IQ is below 85, which is roughly 16% of the population, you will have wealth of essentially zero (as indeed the poorest 16% of the population have today). And no matter how hard everyone works, or how much they educate themselves, we shall always have 16% of the population in the bottom 16%.

And looking at the other end of the spectrum, even if we had a reliable measure of merit, it would not justify the kind of distribution we see today. Somebody with an IQ of 140 is 40% more intelligent than the average person, but in this system, they would have a wealth not 40% greater but 50 times greater – that is 5,000%.

Myth #3: The Wealthiest In Society Truly Believe Myths #1 And #2

If you truly believed Myths #1 & #2, you would want those ‘meritocratic‘ principles applied to everybody in society, not just to the lower classes.

But this is not what we see. The richest make strenuous efforts to keep their wealth within their own circles, and particularly within their own families. They do not (with a few new notable exceptions) say “I want my children to make their own way in the world and earn what they deserve.” They strive mightily to set them up in such a way that failure is almost impossible.

Here for example is the story of the Rockefeller Trust,

“The Rockefellers are perhaps one of the most famous wealthy families to use trusts to pass on their wealth. John D. Rockefeller made his fortune in the early days of the oil business, setting up Standard Oil Company of Ohio – the predecessor of today’s Exxon Mobil.

The first Rockefeller trusts passed the bulk of his wealth to his heirs when he set them up in 1934. Now entering its seventh generation of beneficiaries, with more than 170 heirs, the Rockefeller family was estimated to have still enjoyed an $11 billion fortune in 2016 – so many years after the founding Rockefeller established the initial corpus from his vast holdings and wealth.”

Using the trust in this way, enabled John D. Rockefeller to insulate seven generations of his descendants from the rigours of our ‘meritocratic’ system.

Justifying the continuation of our current system on the basis that it is ‘meritocratic’ means ignoring the way the world really works. And the consequences are severe for ordinary people whose life chances are dramatically reduced by this system. Fortunately, we can change it – indeed it takes only five, relatively simple, steps to make the change.

If this matters to you, please do sign-up  and join the 99% Organisation.