Does meritocracy lead to inequality?

I heard an interesting argument recently: that you can tell our society is more meritocratic now because it is more unequal. I had never heard someone link meritocracy — an unshakeable good — with more inequality — something to be avoided¹.

There are immediate counter-examples if we uncharitably assume this statement-issuer means a linear relationship, serfs lived in both an unequal society and one without a hint of meritocracy. But let’s take on this argument with maturity and assume the best of our source. They’re likely talking about Western society, some time after women in the workplace became more normalised. This society was still deeply un-meritocratic: think of old boys' networks, nepotism, credentialism and prestige, but those seem to have lessened over time and Western countries seem to have simultaneously become more unequal.

Credentialism and prestige still exist today but in a lesser form, driven less by outright prejudice and more by firms' risk aversion, and it seems that the power and influence that money brings and therefore the returns to winning matters much more today than it did in the past, so there’s a greater incentive to ignore biases.

On the other hand, barriers to entry for high-return work are much lower today; big tech is one of the greatest money-making professions, has a whole subspecies of self-taught workers, and has no explicit required credentials governed by a central body like law or medicine. Until more recently, remote and perhaps anonymous work was as valued as in-person work, devaluing further biases and prejudices, and raising the value of raw talent. Similarly, people have spawned careers from making songs in their bedrooms. Although the economic returns may be low on average for musicians, barriers to entry and to enormous returns have never been lower.

We’re specifically talking about meritocracy as the rewards associated with existing talent and hard work. Meritocracy might also mean the returns to something traced back to one’s nature, and we’ll leave that can of worms for another time.

I think that whether meritocracy is a driver for inequality depends on how the returns are structured. This is a consideration of the marginal value produced by each additional unit of talent and work, and whether those additional units of talent and work are constrained by fundamental limitations of the nature of gathering the economic reward. Software is close to zero-cost to copy the product to another consumer. You may only have to design a great pair of headphones once, but you still have to manufacture them each time. There’s no such cost to re-produce the Spotify app for another person. In this case, creating something great has a less constrained return. You’re not paid by the time you spend with a client. It’s the same in an attention-based economy. A single great app or video will grasp the vast majority of the attention and lead to power-law distributions of returns and huge inequality. Meritocracy in professions where the returns are tied to physical interactions with people or have not-insignificant costs per product will lead to less inequality.

So software and streamed music and film lead to inequality. Medicine, law and stage concerts lead to less inequality.

What does this bode for the future? Meritocracy is good, so perhaps we should be marginally more accepting of inequality. The future of zero-cost products looks like it will be largely eaten by AI, zero-cost products can be created by a prior zero-cost product, even though AI cannot currently compete, and what’s more zero-cost than replicating intelligence? The remaining marginal-cost economic activities for us look less promotive of meritocracy, and perhaps more equal.