Rather than a tool of social mobility, higher education now reinforces inequality.
In recent decades all countries have seen a rapid growth in the number of students going into higher education, including students from lower income backgrounds. But has this created more equal societies?
Take the case of the United States, still in many ways the model and trend leader for the Western world in economy, society, and higher education. The USA has developed extreme levels of economic and social inequality, social mobility is declining, and higher education has been unable to compensate—in fact, higher education itself is becoming more stratified. The upper middle class dominates access to the top private universities, participation rates have stopped growing, and graduation rates among low-income families are very disappointing. Inequality is also increasing in Canada—although social mobility, the opportunity to raise up from a low-income background or remote location—is still higher in Canada than in other English-speaking countries.
This article draws together what we know about economic and social inequality with what we know about social ordering through higher education. Following Thomas Piketty’s historical approach to inequality in his book Capital in the Twenty-first Century, we can see important patterns emerging in the last three decades.
Piketty suggests that income inequality is linked to differences in wages, but also to income generated from capital such as property. Most people earn most of their income from their job. Only the top 0.1 per cent earn the majority of their income from capital (wealth) such as government bonds, shares, investments, and property. Wealth is much more concentrated than labour incomes. The top 10 per cent of those who earn their income from labour typically get 20 to 35 per cent of all labour incomes, depending on the country. The top 10 per cent of individuals who earn income from capital normally secure between 50 and 90 per cent 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 per cent, top one per cent, and top 0.1 per cent and top 0.01 per cent is rising in most countries. We are seeing extreme income concentration effects. The higher we move up the income scale, the more private fortunes are expanding—the proportional increase to the income of the top 0.01 per cent is greater than for all of the larger groups. The increase in concentration is particularly stark in the USA and United Kingdom. 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. They are untroubled by the limited funding of public services in low-tax polities because they purchase their own high quality private services.
Piketty’s data show that we are seeing a dramatic regression in the economic history of wealth and inequality, returning us to the pre-World War I era.
THE RISE OF EQUALITY OF OPPORTUNITY
In the 19th and early 20th centuries, society was dominated by a small group of rich families that commanded most of the resources. Education and working hard were not enough to move into the upper echelons—the would-be upwardly mobile in salaried positions could not secure the level of comfort afforded by inherited wealth.
However, this changed dramatically in the period between1914-1945, as a result of two world wars and the Great Depression, which reduced or eliminated many large fortunes. World War II reset the counters close to zero, triggering a remaking and rejuvenation of wealth—in effect there were many vacancies in the middle and upper levels of society for the upwardly mobile to fill. 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 democratized, notably and influentially in the USA. Social openness was also facilitated by a long period of high economic growth after 1945, which helped to expand the size of the middle class and hence further increased the number of opportunities for upward mobility.
The New Deal government intervention in the USA; the emerging Beveridge welfare state agenda in Britain; wartime planning; enhanced national taxation; and the turn to ‘democratic socialism’ in Western polities in response to the challenge of the pro-working class communist bloc, all encouraged and enabled policies in higher education and other sectors that were designed to create a more socially just order. The passage of the G.I. Bill in the USA 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 higher education enrolment policies in many countries, including my own country of Australia. Many students obtained university degrees who would never previously have had the opportunity.
The period between the 1950s and the 1970s was the heyday of meritocracy in the English-speaking world, Western Europe, and Japan. Salary differentials in the workplace were modest. A new property-holding middle class emerged, spreading wealth as well as incomes. 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 capital markets and inheritance.
FROM MERITOCRACY TO PLUTOCRACY
Piketty shows that in the 1970s and 1980s in Scandinavia, the most equal societies so far devised, the top one per cent of income recipients took in seven per cent of income from all sources, both labour and capital (Table 1). In Europe in 2010, the top one per cent received 10 per cent of all incomes. However, in the USA in 2010, the top one per cent received a much higher share at 20 per cent, and Piketty predicts it will be 25 per cent by 2030 if present trends continue.
The income received by the bottom 50 per cent has been as follows: 30 per cent of all income in 1970s and 1980s Scandinavia; 25 per cent in Europe 2010; but only 20 per cent in the USA in 2010. Piketty predicts it will be just 15 per cent in the USA by 2030. It is striking that by 2010 in the USA, the highly inegalitarian income distribution of 1910 Europe had been restored, though now more through disparities in labour income than through capital income as in the past. The main drivers of the exceptionally high income inequality in the USA are ‘super-manager’ salaries (which took off after Ronald Reagan broke the air traffic controllers’ strike in 1981), and the Reagan/Bush/Bush tax cuts. The USA is already the most unequal society in modern history in terms of income distribution, but it is going to get worse.
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 ownership of property and other forms of wealth 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 cent a year on accumulated capital while the average is more like six per cent for other universities. If salary inequality continues to increase in the future, the two sources of this inequality, from labour and from capital, will compound. This suggests that in terms of inequality, “you ain’t seen nothing yet;” the inequality data will start to look more like the income distributions typical of the pre-industrial world.
The top 0.01 per cent of income earners—one in every 10,000 persons, the true plutocracy—received five per cent of total income in the USA just before the Depression in 1928. Their share dropped to less than two per cent 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 six per cent in 2007, dipped during the recession, but was restored to six per cent a year later and is ripping upwards again.
The UK, Australia, and Canada all follow the USA, but the trends are not as blatant. In the Nordic countries income differentials are modest. France, Germany, and Japan are intermediate cases. Inequality in Brazil is actually decreasing. 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 the school and college levels.
In Degrees of Inequality, Suzanne Mettler notes that in 1970, 40 per cent of US students whose families were in the top income quartile had achieved a degree by age 24. By 2013 that percentage had risen to 77 per cent. For families in the bottom income quartile in 1970, only six per cent achieved a degree. By 2013 after 43 years of supposed equality of opportunity that proportion was just nine per cent.
In higher education, people’s unequal capacity to pay and to compete for selective places has been joined by increasing stratification among the institutions themselv es. The institutional hierarchy is getting steeper. Research by Scott Davies and David Zarifa in the USA and Canada shows that institutions that begin from a position of advantage build on that to improve their relative position over time. This 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.
This raises the question of whether degree value is increasingly unequal in labour markets. It is difficult to disentangle the effects of institution (the so-called brand effect) from the social and academic advantages enjoyed by the clientele of elite universities at point of entry, 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 USA (and also in the UK and China) suggest that institutional brand affects degree value.
Access to elite institutions is stratified sharply by social group. Joseph Soares has shown that in the Tier 1 private universities in the USA, 64 per cent of students come from families earning in the top 10 per cent. According to the Dean of Admissions at Yale, only five per cent of American families can pay the full sticker price. But 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 and weakening status of mass higher education. It is being weakened because of the partial withdrawal of per-student funding from public education, and the rising use of poor quality private for-profit higher education (heavily subsidized by federal loans financing in the USA) and online courses, as substitutes for state-guaranteed provision. Higher education is not responsible for extreme income inequalities in the USA, 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 USA but in many countries.
First, across the English-speaking world, the former Soviet bloc, and much of Eastern Asia and Latin America, per-capita public funding of higher education 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 the 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 USA suggests a declining commitment to student learning among both students and institutions. It is difficult to pin this phenomenon down conclusively, but there is some evidence that suggests a retreat from solid learning content and an increased focus on the selection function of education, navigating the educational hierarchy, student consumer satisfaction, and credentialing—aspects that are highlighted in a positional market. These practices break the link between hard work, content, and educational outcomes. This denies aspiring students from poor backgrounds a learning technology that they can invest in, while placing greater emphasis on the institutional smarts—the social and cultural capital—that they do not possess. This is as fatal for equality of opportunity as 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, but is less concerned with achieving Nordic quality in broadly accessible forms of higher education.
The formation of world-class universities is not a problem for equal opportunity provided the rest of the sector is elevated as well. However, 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 institutions of dubious value.
Fourth, the transfer function, or the potential to move between mass institutions and elite ones, is mostly weak or non-existent in most places. Transfer has even faltered in California, where it was part of the University of California system’s original Master Plan, and has rarely developed well elsewhere.
WHERE TO FROM HERE?
So we have on one hand growing economic and social inequality, and on the other a hierarchical higher education system with socially differentiated access to higher education overall, and further differentiated access to its upper reaches. Increasingly, the second form of differentiation overshadows the first, so the most important question is not access, but rather, “access to what?”
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.
It is clear that higher education plays only a minor role in sustaining the position of the mega-rich. Higher education is not the driver of inequality at that level though no doubt the stratification of higher education sector plays into widening gap between upper class and middle class.
Where higher education can have its greatest effect is in increasing opportunities for upward mobility. Upper middle class family domination of prestigious universities limits that prospect. This is a key area in which to concentrate reform efforts. Education is a matter of social relations. We are all affected by the number and value of high quality 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 as a mechanism for enhancing inequality, or a dead end with limited capacity to lift the individual and collective position.
We need to build more egalitarian higher education systems with a more broadly distributed capacity to create value. This will strengthen the relation between higher education and social outcomes and opportunities. There needs to be fairer selection into elite institutions, and the elimination of financial barriers to attend those institutions. The middle tier of institutions needs to be built up, though not at the expense of learning and research in the top group. We should flatten status by leveling up, not down.
But the history of the postwar period shows that there are limits to how far we can secure a more egalitarian society through change to higher education alone. In the English-speaking countries, the larger issue is to restore the social compact on taxation, increasing top marginal tax rates, and lifting the taxation of capital to the same level as taxation of income. This can begin to reassert democratic social values and re-strengthen higher education as an alternative to money and inheritance as determinants of social participation, selection, and individual and collective success.