The economy needs a little bit of unfairness

THERE are a lot of reasons, some deserved and some not, for Americans’ distrust of their institutions. Lately I have been thinking about one of the more counterintuitive ones: Our schools, governments and even employers are trying too hard to make things fair.

In so doing, they are not only setting themselves up for failure – and eventually mistrust – but they are also misunderstanding the galvanising role that unfairness plays in a competitive economy.

Unfairness can be tempered, but it can never be eliminated. The decision of how much unfairness to tolerate is one for society to make, and we expect our institutions to enforce it.

But in the last decade or so, those institutions went too far in enforcing fairness, without full buy-in from the public and at the expense of other values.

The first question is what fairness means. It certainly does not require that economic success be equally allocated and that people not be held back by things they cannot control.

Where we are born and the family we are born into make an enormous difference. Parents who invest more in their children in terms of time and resources give them a big advantage. This has never been fair but has always been true.

None of this is an argument against institutions intervening to stop discrimination, especially if it is based on a person’s immutable characteristics. In the past, institutions did not do enough about this – or worse, contributed to it. It is also the case that institutional priorities can and should shift over time.

In the 20th century, American institutions helped reduce barriers that held many talented people back, improved access to education and basic services, and made the tax code more progressive.

There have been two big changes in the last 20 years, one of them empirical and the other more impressionistic. First, American society has gotten richer, and inequality wider. This made imposing a norm of fairness more critical.

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Second, younger generations had less unsupervised play time – which meant they often relied on authority figures to settle disagreements instead of doing it themselves. Now they expect institutions to do what authority figures once did for them as children.

Education

That does not always work out. At the University of California at San Diego, more than 12 per cent of incoming students struggle to do middle-school maths – even though many had excellent grades in high school. Meanwhile, an alarming share of students at elite universities have some form of disability accommodation that allows them to take untimed tests.

The goals here are noble: These institutions are trying to make the system more forgiving for people who are not great at maths, received poor instruction or are bad at taking tests. But the result is unfair.

With a limited number of slots available at California’s public universities, more qualified students are denied admission. Excess accommodations undermine the rigour and reputation of a university education, hurting all graduates.

A US educational system that is less concerned about its primary mission – teaching students – and more focused on levelling the playing field in society results in perverse outcomes and less trust.

It does not end in college. There is also an expectation that employers are supposed to promote fairness by more heavily weighing factors that don’t have to do with qualifications or performance when making hiring, promotion and pay decisions.

Diversity, equity and inclusion in the workplace certainly started with good intentions – to remove unfair barriers that held women and minorities back. But the implementation was at times clumsy or corrupt, and many came to see it as another form of discrimination.

Immigration

A fixation on fairness can also explain some governmental failures – such as on immigration. Being born in America is an unfair advantage. Fairness would dictate that anyone who wants a better life for themselves be allowed to emigrate to the US.

But if that impulse goes too far, as it did under president Joe Biden, then native-born workers become resentful. People lost trust that the government could control the border, and the Democrats lost elections.

Now President Donald Trump is veering too far in the other direction, rounding up immigrants, which is also eroding trust in government (and support for Republicans). There is less scope for a thoughtful immigration policy that balances fairness to the world with domestic economic priorities.

Don’t get me wrong: Fairness is something every society should strive for. By the same token, no society will ever eradicate unfairness. In some ways, a lack of fairness actually powers the economy forward. Basing decisions on merit – whether in government, schools or the workplace – is more efficient. It is also critical for incentives.

People work hard not only for their own success, but also to give their children every advantage. Take away those advantages, and you also take away those incentives. The end result is distrust of the system.

The problem with fairness isn’t so much with the ideal as the execution: Too many policies that promote fairness also promote zero-sum thinking about the economy, under which more opportunity for the less fortunate means less opportunity for everyone else.

But this is not how economies work. If America’s institutions want to regain the public’s trust, they would be better off focusing on growth than on fairness. BLOOMBERG