Is Hierarchical Higher Education Fuelling The Wealth Gap?

WTFSG_PROF-Simon-Marginson_University-of-London_UKBy PROF Simon Marginson, University of London, UK

The last decades have seen a rapid growth in the number of students going into higher education in English-speaking countries such as the United States, including those from lower income backgrounds. But has this created more equal societies?

The US, in particular, has extreme levels of economic and social inequality and in higher education progress on access seems to have halted. Total graduation rates have levelled off. Participation is still growing rapidly in many other countries, but what happens in the US is important and often portends the future. The US is still the model and trend leader, in economy, society and higher education.

Linking income and wealth data and social ordering (including social ordering through education) is not a perfect science. But if we look at the last decades, adopting Thomas Piketty’s emphasis on an historical approach in his book Capital in the Twenty-First Century, we see important new patterns emerging.

Economic inequality

Income inequality is linked to differences in wages, but also to income generated from capital such as property. Most people earn the majority of their income from their job. Only the top 0.1% earn the majority of their income from capital (wealth) such as government bonds, shares, investments and property.

As this suggests wealth is always much more concentrated than labour incomes. The top ten per cent in terms of income from labour typically gets 20% to 35% of all labour incomes, depending on the country. The top ten per cent in terms of income from capital secures between 50% and 90% of all capital incomes, with the precise proportion again depending on country.

The concentration of wealth and income in the hands of the top 10%, top 1%, and top 0.01% is rising in most countries but the increase in concentration is particularly stark in the USA and UK. The ultra-rich seem to be in another world from the rest of us. They pay tax at low rates, hide wealth offshore and their incomes are climbing rapidly, while other incomes stagnate or decline.

We are seeing a dramatic regression in the economic history of wealth and inequality, returning us to the pre-World War One era.

In the 19th and early 20th centuries society was dominated by a small group of rich families that commanded most of the resources. Work and study were not simply enough to achieve the level of comfort afforded by inherited wealth. However, this changed dramatically in the period 1914-1945, as a result of two world wars and the Great Depression, which reduced or eliminated many large fortunes.

Equality of opportunity

World War II reset the counters to zero, or close to zero, triggering a remaking and rejuvenation of wealth. Ultimately this proved to be a transitional phase. Nevertheless, the period of social and economic openness was an extended one. This is because wealth creation had been partly democratised, notably and influentially in the US. Openness was also facilitated by a long period of high economic growth after 1945.

The New Deal government intervention, wartime planning, taxation and systemic approaches, and the turn to ‘democratic socialism’ in response to the challenge of the communist bloc, all encouraged and enabled policies in higher education and other sectors designed to create a socially just order.

The passage of the GI Bill in the US in 1944 set off an explosion of growth in higher education. It provided veterans with generous financial aid for tuition and living expenses, changing the face of the country by creating access to higher education for millions of Americans. There were parallel postwar enrolment policies in many countries.

The period between the 1950s and 1970s was the heyday of meritocracy. Salary differentials in the workplace were modest, while growth and rates of innovation were both high. The gap between the rate of economic growth and the rate of return on capital narrowed, creating a new ‘patrimonial’ (property-holding) middle class. For a brief time in the 1970s inherited wealth was a minority of all private capital, outweighed by the capital people had created during their lifetimes, saved and invested in their own homes.

The great role carved out for schooling and higher education was that of a democratic mechanism for selecting aspirants for a ‘socially just elite’ based in hard work and educated merit, an alternative to the capital markets and quasi-aristocratic inheritance.

The momentum for meritocracy, partly informed also by the Marxist dream of a classless society, and by successive democratic movements from Chartism in the 19th century to the New Left and the second wave of feminism in the 1960s-1970s, was very strong.

But it is important to recognise that the modern ‘equality of opportunity’ era, in which meritocracy was mainstreamed in government tax/spend policies, dates back only 70 years or so. The politics of equality of opportunity in the public systems of schooling and training, and in the higher education sector, up to and including the global research universities, are less than three generations old.

Was it all just a dream within a dream, a moment in time within the longer history of capitalist societies? Is the democratic mission of higher education slipping away? Is the equality of opportunity era over?

Can equality of opportunity through education be remade? Or will we find another way of establishing merit and distributing rewards? One thing is certain – the patterns and drivers of economic inequality have been decisively changed.

From meritocracy to plutocracy

In 1970s-80s Scandinavia, the most equal societies so far devised, the top 1% received 7% of income from all sources, both labour and capital. In Europe in 2010, the top 1% received 10%. In the USA in 2010, the top 1% got a much higher share at 20%, and Piketty predicts it will be 25% by 2030 if present trends continue.

The income received by the bottom 50% was 30% of all income in 1970s-80s Scandinavia, 25% in Europe 2010, but only 20% in the US in 2010. Piketty predicts it will be just 15% in the US by 2030. It is striking that by 2010 in the US, the highly inegalitarian income distribution of 1910 Europe had been restored, though now more through labour income than through capital income as in the past.

Of course, in the next generation the balance between wage inequality and wealth inequality will start to shift back towards wealth. Income inequality becomes translated into inequality of property and wealth and property is reproduced across generations.

Those with the largest fortunes gain the highest rate of return from capital, leading to further concentration of wealth. To illustrate this point about large fortunes Piketty cites university endowments, as the data are transparent: Harvard earns over 10% per annum on accumulated capital while the average is more like 6% per annum.

If salary inequality continues to increase in the future, the two sources of inequality, from labour and from capital, will compound. This suggests that ‘you ain’t seen nothing yet’ and the inequality data will start to look more like the income distributions typical of the pre-industrial world. Welcome to the Persian Empire, folks.

The pace of growing inequality is staggering, especially at the very top. The top 0.01% of income receivers – one in every 10,000 persons, the true plutocracy – reached 5% of total income in the USA just before the Depression in 1928. Their share dropped to less than 2% and did not get back to the 1928 position until 1998, after two decades of tax cuts and super-manager salary hikes. It then rose to an historic high of 6% in 2007, dipped during the 2008-2009 Great Recession, but incredibly was restored to 6% by 2010 and is now ripping upwards again.

It is not the same in all societies. The UK, Australia and Canada follow the USA though the trends are not as blatant. Contrast this with the Nordic countries where income differentials are modest. France, Germany and Japan are intermediate cases. South Korea is more egalitarian, but that’s partly because it has a fast growing economy and patrimonial middle class. China is also an emerging society with a growing middle class. Inequality in Brazil is reducing.

These differences show that historical, institutional and political factors play a role and that the tendency to accumulation of inherited capital is by no means inevitable.

Social stratification in US higher education

Turning now to higher education, we find that in the US, as the economist Joseph Stiglitz puts it: “Access to good education depends increasingly on the income, education and wealth of one’s parents.” This is true at both school and college level.

In Degrees of Inequality, Suzanne Mettler notes that in 1970, 40% of US students whose families were in the top income quartile (top 25%) had achieved a degree by age 24 years. By 2013 that percentage had risen to 77%. For families in the bottom income quartile in 1970, only 6% achieved a degree. By 2013, after 43 years of equality of opportunity policy that percentage had risen to just 9%.

In higher education people with unequal capacity to pay, and to compete for selective places, meet unequally valuable (stratified) institutions. The institutional hierarchy is getting steeper.

Research shows institutions that begin from a position of advantage build on that to improve their relative position over time. That is what market competition does when it is not corrected by policy. The relationship between resource concentration and student selectivity becomes stronger over the years.

Is degree value increasingly unequal in labour markets? This area is less researched than it should be. It is difficult to disentangle the effects of institution (the ‘brand effect’) from the social and academic advantages enjoyed by the clientele of elite higher education institutions at point of entry, and the effects of social background in mediating labour market outcomes, and the effects of learning. The evidence is mixed. But a large number of studies in the US (and also in the UK and China) suggest that institutional brand affects degree value.

Access to elite institutions is stratified sharply by social group. In the Tier 1 private universities in the US, 64% of students come from families earning in the top 10%. According to the dean of admissions at Yale, only 5% of American families can pay the full sticker price.

Many poor students don’t get to the starting gate for entry into elite institutions. Recent research by Caroline Hoxby and Christopher Avery shows that the vast majority of low-income high achievers do not apply to any selective college.

Associated with growing stratification at the top is the weak status of mass higher education. It is being weakened because of the partial withdrawal of per student funding from public education, and-or use of poor quality private and-or online substitutes for state-guaranteed provision.

Higher education is not responsible for the extreme income inequalities in the US, which derive from labour markets and tax policy. But these inequalities no doubt undermine the meritocratic rationale for higher education, and this contributes to undermining support for mass higher education and the weakening of its public funding.


Conditions for equality of opportunity have weakened

The conditions for equality of opportunity have weakened in four crucial respects, not just in the US but in many countries.

First, finance. Across the English-speaking world, the former Soviet zone, and much of Eastern Asia and Latin America, per capita public funding is declining as participation grows. Increasing tuition costs affect social access, especially to the elite private universities.

Free tuition would help (though it would be naïve to think this would be enough to overcome social and cultural inequalities at point of selection). But the problem is that the tax revenues are not there to pay for it.

There is a vicious circle – the taxpayer will not support equality of opportunity as a public good so public financing is reduced, which in turn reduces equality of opportunity and evaporates the argument for it.

Second, research especially in the US suggests a declining commitment to student learning among both students and institutions. It is difficult to pin this down conclusively, but a number of bits of evidence suggest a retreat from solid learning content and an increased focus on the selection function of education, piloting the educational hierarchy, student consumer satisfaction, and credentialing – aspects that are highlighted in a positional market.

These practices break the link between hard work and content and educational outcomes. This denies aspiring students from poor backgrounds a learning technology that they can invest in, while placing greater emphasis on institutional smarts, and social and cultural capital, that they do not possess. In the long run this is as fatal for equality of opportunity as the erection of financial barriers.

Third, the shape of higher education systems is being ‘stretched’ vertically – the university hierarchy is getting steeper. Worldwide there is the ever-growing emphasis on World-Class Universities. Every nation, it seems, now wants its own version of the American science multiversity, the kind of institution that figures in global rankings.

The worldwide spread of capacity in science is, of course, very desirable – the democratisation of knowledge on the global plane. The formation of World-Class Universities is not a problem for equal opportunity provided the rest of sector is elevated also, as happens in the healthy systems of Western Europe, in the Netherlands, Switzerland, Denmark, Sweden and Finland; and provided also that the transfer routes are good. But without those elements the World-Class University project will tend to become institutionally and socially stratifying.

The problem is that, in much of the world, the World-Class University movement has become combined with a crisis in the quality of mass higher education. Here the retreat of the state shows itself. In many systems the majority of enrolments are located in private sectors of doubtful value.

Fourth the transfer function, meaning the potential to move between mass higher education institutions and elite higher education institutions, is mostly weak or non-existent. Transfer has faltered in California, where it was part of the original Master Plan, and it has rarely been developed well elsewhere.

How crucial is higher education for the plutocracy?

So we have, on the one hand, growing economic and social inequality and, on the other hand, a hierarchical higher education system, with socially differentiated access to higher education overall and socially differentiated access to its upper reaches. Increasingly, the second form of differentiation overshadows the first, so the most important question is not access, but access to what?

However, to what extent is educational inequality causal in itself – or to what extent is it merely a reflection of the larger patterns of inequality? Clearly all these structures and processes are interactive and in some sense mutually constitutive. But to put the issue more specifically – how crucial is higher education for the plutocracy?

Do the mega-rich need this stratified higher education system as a condition of wealth creation? Has more unequal higher education generated, or at least contributed to, the dramatic lift in the position of the 1% and the 0.01%, especially in the US?

No doubt the stratification of higher education sector plays into widening the gap between upper class and middle class. However, the educational factor does not seem to provide the explanation for the super salaries of the super-managers.

Moreover, 19% of the children of all high income professional families in the US, and no less than 36% of the children of other high income families, do not attend any kind of college. Clearly, they do not need higher education.

It may be that the meaning of the recent spectacular growth of inequality, which is occurring more among entrepreneurs and managers than among professionals, is that high incomes and wealth are becoming increasingly decoupled from higher education access and performance.

This would suggest that with unequal higher education seen as a natural state of affairs, and with low expectations about wealth redistribution, the elite does not need educational legitimisation to continue to enrich itself at the expense of the rest of society.

If so, this portends a more complete demise of the equality of opportunity project. Higher education would move from an instrument that is failing to fulfil its earlier promise to correct inequality, to one that is no longer able to impact inequality much at all.

In such a world meritocratic sorting in higher education would continue at the middle levels of society, arbitrating small differences in stagnant incomes, but would be irrelevant to the real economic action among the super-rich at the top. Higher education would have little or no impact on access to the top, which will be largely shaped by inheritance and by familial networking in job selection.

Where to from here?

These trends remind us of the public and political character of higher education. Education is a matter of social relations. We are all affected by the number and value of high value educational places and by what governs access to those places. We need to assert the role of higher education as a public good and as a response to social and economic inequality – rather than a mechanism for enhancing inequality, or a dead end with limited capacity to lift the individual and collective position.

In the English-speaking countries, this underlines the importance of restoring the social compact on taxation, increasing top marginal tax rates, and lifting the taxation of capital to the same level as taxation of income. As Piketty notes, taxation is THE political issue.

We need to rebuild a more egalitarian higher education system with a more broadly distributed capacity to create value. This will help to recouple higher education and social outcomes or opportunities. Selection should be based on merit not money.

There needs to be fairer selection into elite institutions. The middle tier of institutions needs to be built up, though not at the expense of the learning and research resources in the top group. We should flatten status by levelling up not down.

Above all we must shore up mass higher education through government guarantees and funding mechanisms. Free tuition is best, but income contingent loans are best when there are tuition charges. We also need to reassert content and lift standards of learning.

Doing all of the above will not by itself eliminate the problem of a self-enriching plutocracy, and establish a polity in the US and elsewhere that is no longer controlled by wealth, but it will help. It will assert democratic social values and restrengthen the educational alternative to money and inheritance as determinants of social participation and selection.


Simon Marginson is professor of international higher education at the Institute of Education, University of London, UK. This article is based on his presentation at the First Annual 2015 Worldviews Lecture on Media and Higher Education given on 21 April.

* Readers can watch the archived lecture here. There are separate links to the lecture and the Q&A session.

(Article first seen on University World News)