Laissez-Faire Institute - Freedom Without Compromise

It’s not about merit: it’s the value you create that matters

Meritocracy is a beautiful word. No. It’s a word that refers to a beautiful thing: that each receives according to his merit, usually equated to effort, dedication, sometimes intelligence

And—this is what some market liberals assure us—it is the rule in place on the market. Who makes the effort, gets there.

It is questionable to what extent such personal merit even exists. Hélio Schwartsman, in Folha, pointed out that fact that nobody likes to remember: personal effort, sweat, work capacity, intelligence; all depend on variables that are beyond personal choice - and therefore of the merit - of the individual. That sphere of what is purely mine, of merit only, distinct from the circumstances of the environment and history, simply does not exist. At least, not in the naive way that we’re being sold.

Whether it exists or not, is it true that the market rewards merit fairly? If so, dear market liberal, then you must contend that Gugu Liberato and Faustão (well-known Brazilian talk show hosts) have more merit than a really excellent teacher actually teaching useful things.

Nothing against Gugu and Faustão, but they are not my ideal example of discipline, dedication and hard work. And yet, the market rewards them very well. On the other hand, millions of workers work hard day and night, and millions more of unemployed people look for something to do, yet remain poor. Are they lacking effort? Are they lazy, or stupid maybe?

None of that.

What really determines compensation on the market isn’t merit, isn’t virtue, isn’t effort or dedication. It’s only the creation of value: the value that a given person is able to add to the lives of others.

It doesn’t matter whether it’s through effort, intelligence, luck, natural talent or heritage; the more essential that value is for others, the more they’ll be willing to reward it.

Effort, in and of itself, does not guarantee anything. It is true, more or less constantly, that if someone finds a field in which they can create value, it can be expected that more effort creates even more value. With the passing of generations, social rise accumulates: the daughter of the Northeastern pensioner working as a maid has a computer, gets English lessons and will probably not be a housemaid when she grows up.

It is like that that societies get rich. It doesn’t happen overnight, and it has nothing to do with the naive belief that income is or should be proportional to merit.

Nothing is guaranteed. Sometimes, the sector in which a person works becomes obsolete, and the value produced after the dedication of a lifetime falls abruptly. There were many very dedicated people among the record player technicians in the mid-1990s; and yet...

Meritocracy is a concept that applies inside organizations. Promoting members on the basis of merit (generally measured by some indicator) can be better than doing it by length of service, subjective opinion of a superior etc. Meritocracy is a management model. Even the government, for instance, could benefit of it, reducing its inefficiency. But it isn’t a model without flaws: the need to show results creates a strong internal pressure that can undermine cooperation, and manipulation of the merit indicators can alter the assessment system.

Finding the most adequate system for each context is a question of administration, of the internal workings of organizations, which has nothing to do with the market. The market is the proces (yes, remember that: the market is a process) in which some organizations exist and operate. It happesn that non-merit-based organizations strive on the market, while merit-based organizations can exist outside of it.

Satisfy the needs of others, and yours will be satisfied. It doesn’t matter whether it’s because of merit, luck or talent. The most hard-working and well intentioned guy in the world, if he does not create value, will remain empty-handed.

Does that seem wrong to you? Then here comes a secret: it’s you that perpetuates that system. If your refrigerator breaks, are you going to want a struggling technician who tries his best, or are you going to want one who provides excellent service, effortlessly and at a low cost? Do you prefer a bad restaurant with hard-working employees, or one where you can eat well? The world reflects your code of values and, lo and behold, it is not meritocratic.

Life is not and should not be a race that starts from equal conditions and in which, at the end of the game, the best win. To the extent that this meritocratic dream is even possible (we are far from correcting genetic inequalities, for example), it would require a huge investment just to achieve it; we would sacrifice value in order to create artificial conditions that would correspond to that abstract ideal. Everyone would end up poorer for realizing that moral dream.

But who said that equality is morally superior to inequality? If a meteor falls on my house and not on yours, is that unfair? Is it immoral?

The market system does not reward virtue; it rewards, and therefore creates incentives for creating, value. Is it ugly to say that? Maybe, but it also has a good side: it is the system that allows that the life of everyone gets better at the same time. That everyone who wants to rise up has to help others to rise as well. It does not put everyone on the same level, but guarantees that the direction of change be upwards.

The ideal of the meritocracy has its appeal, but it rests on half-truths: the idea of merit that is only mine and no one else’s, that my sweat justifies what I got. That without sweat or intelligence, what you get is dirty, undeserved. But the other side of that coin is ugly: it implies to say that whoever didn’t succeed lacked merit, that poverty is the poor’s fault.

The logic of the market is different: if you create value, you’ll be rewarded. Your wealth does not tell anything about your merit; it does not justify it nor needs to be justified by it. The result of that focus on value is that more value is created. You receive what you deliver and everybody wins.

[Note by IMB: Why do Faustão, Gugu, soccer players and global artists earn more than one million Reals a month while even a really good teacher makes only some 5000 Reals? A good teacher does create real value, but he does so only for a tiny number of people per year. How many different students does he have? Probably not more than 200 (a very exaggerated number). Therefore, he creates value for 200 people per year. This is an extremely low productivity. On the other hand, the above mentioned persons enjoy a nation-wide reach (some, even worldwide), and millions of people willingly consume their services, which generates massive returns - whether you personnally like them or not - to their employers every week, who are therefore happy to pay them millionaire wages. If they weren’t creating value, it would be simply impossible for them to have these salaries.]