How the Failure of “Prestige Markets” Fuels Populism

Prestige is in our genes. According to biological anthropologist Joseph Henrich, it evolved because we are a cultural species, in the sense that our individual survival depends on acquiring the knowledge that resides in the collective brain. We acquire it through imitation, but we need to decide whom to imitate. Numerous scientific studies have shown that we tend to imitate people who are perceived to have prestige, a sense that develops very early in childhood.

Henrich suggests that this is the outcome of an evolutionary game in which prestige is payment for the generosity with which the prestigious share their knowledge. We share alpha-male dominance with our primate cousins, but prestige – a form of “payment” that predates money, wages, and stock options – is quintessentially human.

While prestige solved a problem that has been with us throughout our evolution, it has had to interact with the technological changes of the past half-century. In particular, the rise of what economists call skill-biased technical change – the reliance of modern technologies on highly skilled workers – has led to growing wage differentials between skill levels.

In his new book The Future of Capitalism, Paul Collier argues that this increased wage inequality has changed the self-perception of the highly skilled: their professional identity has gained greater salience than their sense of themselves mainly as members of the nation. Using a model of human behavior proposed by George Akerlof and Rachel Kranton, Collier argues persuasively that the satisfaction conferred by one identity relative to another – say, the profession over the nation – depends on the esteem with which others regard that identity.

As wage differentials grew, and the highly skilled shifted the focus of their identity from nationhood to profession, the value for all others of maintaining their national identity decreased. The low-skilled were trapped in a less valuable national identity.

This dynamic, according to Collier, explains the vote for Brexit in Britain and the rise in right-wing nationalism in other rich countries: it is concentrated among lower-skilled inhabitants of more rural, less ethnically mixed environments where traditional national identity is still dominant. It also explains declining trust in elites: because members of the elite identify primarily with their more global professional identity, they are perceived as caring less about their reciprocal obligations with the rest of the nation. Delegating choices to experts is passé, because experts no longer care about the rest of us.

Rising wage differentials may destroy the equilibrium proposed by Henrich. If the prestigious are already very well paid, and are not perceived as being generous with their knowledge, prestige may collapse. This may be another instance of the incompatibility between homo economicus and community morality emphasized by Samuel Bowles in his book The Moral Economy: the self-interested, transactional behavior that defines the market is not acceptable in the family or the community.

The collapse in the prestige equilibrium can do enormous damage to a society, because it may break the implicit contract whereby society uses critical skills. To see why and how, look no further than what has happened in Venezuela.

In 2002, then-President Hugo Chávez’s left-wing populist rhetoric targeted the national oil company PDVSA. The company was already a state-owned enterprise, so nationalization was not the issue. For Chávez, the problem was PDVSA’s meritocratic culture: to succeed in the company, political connections were of no use. What the company valued most was the knowledge needed to manage a complex organization.

Social barriers to entry at PDVSA were low, because Venezuela had a 50-year history of free university education and decades of generous scholarships to study abroad, especially in oil-related fields. But once in, advancement was merit-based. A similar culture developed in the power sector, the central bank, universities, and other entities that were critical for state capacity.

The populist revolt equated knowledge with privilege and threw it out the window. When the merit culture was threatened, the company went on strike, and more than 18,000 workers – over 40% of the company’s labor force and almost all of its senior management – were fired. As a result, there was a spectacular collapse in the performance of the oil industry and, eventually, in all the other institutions affected by the war on expertise, leading to the catastrophe that is Venezuela today.

The lesson is clear. Given the requirements of today’s technology, dismissing expertise as privilege is dangerous. But because gaining expertise takes time and effort, it is not freely accessible to “the people.” The only way to sustain it is through an implicit prestige market: the experts are supposed to be generous with their knowledge and committed to the nation. Society “pays” them back by according them a social status that makes their position desirable, even if wage differentials are compressed, as they often are in the public sector (and were in Venezuela at the time of the lethal attacks on expertise).

The alternative to populism is an arrangement whereby experts demonstrate authentic public spiritedness in exchange for society’s esteem, as often happens with military leaders, academics, and doctors. A well-functioning prestige market is essential to reconciling technological progress and the maintenance of a healthy polity.

Time for G.O.P. to Threaten to Fire Trump

Republican leaders need to mount an intervention.

Up to now I have not favored removing President Trump from office. I felt strongly that it would be best for the country that he leave the way he came in, through the ballot box. But last week was a watershed moment for me, and I think for many Americans, including some Republicans.

It was the moment when you had to ask whether we really can survive two more years of Trump as president, whether this man and his demented behavior — which will get only worse as the Mueller investigation concludes — are going to destabilize our country, our markets, our key institutions and, by extension, the world. And therefore his removal from office now has to be on the table.

I believe that the only responsible choice for the Republican Party today is an intervention with the president that makes clear that if there is not a radical change in how he conducts himself — and I think that is unlikely — the party’s leadership will have no choice but to press for his resignation or join calls for his impeachment.

It has to start with Republicans, given both the numbers needed in the Senate and political reality. Removing this president has to be an act of national unity as much as possible — otherwise it will tear the country apart even more. I know that such an action is very difficult for today’s G.O.P., but the time is long past for it to rise to confront this crisis of American leadership.

Trump’s behavior has become so erratic, his lying so persistent, his willingness to fulfill the basic functions of the presidency — like

  • reading briefing books,
  • consulting government experts before making major changes and
  • appointing a competent staff — so absent,

his readiness to accommodate Russia and spurn allies so disturbing and his obsession with himself and his ego over all other considerations so consistent, two more years of him in office could pose a real threat to our nation. Vice President Mike Pence could not possibly be worse.

The damage an out-of-control Trump can do goes well beyond our borders. America is the keystone of global stability. Our world is the way it is today — a place that, despite all its problems, still enjoys more peace and prosperity than at any time in history — because America is the way it is (or at least was). And that is a nation that at its best has always stood up for the universal values of freedom and human rights, has always paid extra to stabilize the global system from which we were the biggest beneficiary and has always nurtured and protected alliances with like-minded nations.

Donald Trump has proved time and again that he knows nothing of the history or importance of this America. That was made starkly clear in Secretary of Defense Jim Mattis’s resignation letter.

Trump is in the grip of a mad notion that the entire web of global institutions and alliances built after World War II — which, with all their imperfections, have provided the connective tissues that have created this unprecedented era of peace and prosperity — threatens American sovereignty and prosperity and that we are better off without them.

So Trump gloats at the troubles facing the European Union, urges Britain to exit and leaks that he’d consider quitting NATO. These are institutions that all need to be improved, but not scrapped. If America becomes a predator on all the treaties, multilateral institutions and alliances holding the world together; if America goes from being the world’s anchor of stability to an engine of instability; if America goes from a democracy built on the twin pillars of truth and trust to a country where it is acceptable for the president to attack truth and trust on a daily basis, watch out: Your kids won’t just grow up in a different America. They will grow up in a different world.

The last time America disengaged from the world remotely in this manner was in the 1930s, and you remember what followed: World War II.

You have no idea how quickly institutions like NATO and the E.U. and the World Trade Organization and just basic global norms — like thou shalt not kill and dismember a journalist in your own consulate — can unravel when America goes AWOL or haywire under a shameless isolated president.

But this is not just about the world, it’s about the minimum decorum and stability we expect from our president. If the C.E.O. of any public company in America behaved like Trump has over the past two years —

  • constantly lying,
  • tossing out aides like they were Kleenex,
  • tweeting endlessly like a teenager,
  • ignoring the advice of experts —

he or she would have been fired by the board of directors long ago. Should we expect less for our president?

That’s what the financial markets are now asking. For the first two years of the Trump presidency the markets treated his dishonesty and craziness as background noise to all the soaring corporate profits and stocks. But that is no longer the case. Trump has markets worried.

.. The instability Trump is generating — including his attacks on the chairman of the Federal Reserve — is causing investors to wonder where the economic and geopolitical management will come from as the economy slows down.

  • What if we’re plunged into an economic crisis and we have a president whose first instinct is always to blame others and
  • who’s already purged from his side the most sober adults willing to tell him that his vaunted “gut instincts” have no grounding in economics or in law or in common sense. Mattis was the last one.

We are now left with the B team — all the people who were ready to take the jobs that Trump’s first team either resigned from — because they could not countenance his lying, chaos and ignorance — or were fired from for the same reasons.

I seriously doubt that any of these B-players would have been hired by any other administration. Not only do they not inspire confidence in a crisis, but they are all walking around knowing that Trump would stab every one of them in the back with his Twitter knife, at any moment, if it served him. This makes them even less effective.

Indeed, Trump’s biggest disruption has been to undermine the norms and values we associate with a U.S. president and U.S. leadership. And now that Trump has freed himself of all restraints from within his White House staff, his cabinet and his party — so that “Trump can be Trump,” we are told — he is freer than ever to remake America in his image.

And what is that image? According to The Washington Post’s latest tally, Trump has made 7,546 false or misleading claims, an average of five a day, through Dec. 20, the 700th day of his term in office. And all that was supposedly before “we let Trump be Trump.”

If America starts to behave as a selfish, shameless, lying grifter like Trump, you simply cannot imagine how unstable — how disruptive —world markets and geopolitics may become.

We cannot afford to find out.