Inheritocracy-Economist

I read the Economist every week. I have tried to make this a habit although trying to finish each issue before the next one comes out in a week’s time is not easy. But it’s well worth the effort. I learn a lot from the articles although I may not always agree with their point of view on everything.

So this week’s leader was this article entitled Inheritocracy. This is about how a group of younger generation will inherit the wealth accumulated by their parents. The wealthier the country, the more the young there would inherit.

The magazine argues that this will create problems. For one it will create a class of people who will accumulate and hoard their wealth to pass on to their children and not put it into productive economic uses. The bigger problem, and the one I think is serious, is that of an underclass of non-beneficiaries who will be left far behind especially in relation to owning properties. This is especially true when property prices are increasing at a rate far greater than that at which salaries are increasing Properties may become out of reach of a large majority without any inherited wealth. This group will become disaffected and have little or no incentive to work hard as the opportunities to have a comfortable life are becoming increasingly stunted.

I tend to agree with this. I did not come from a wealthy family but my parents worked hard to give me a good education. Through a good education and hard work, I was able to reach a certain comfortable level in my life. There was an incentive to study and work hard because you knew that through that you can own a decent property, car, comfortable holidays etc. I think this was also the case for most of my friends and colleagues in that age group.

I worry that the social mobility I had is disappearing in today’s society. True you may have a HBD roof over your head and good public transport so that there is less need to own a car but how much further can one beyond these when you are competing with inherited wealth.

So yesterday, a good friend called me at 6 in the morning. He wants to purchase a $8 million apartment for his grandchild. His sons and daughters are already taken care of. Imagine being aged 2 and already owning a property which has a current market value of $8m. What will be the value of that property when his grandchild reaches 21. I understand many wealthy people have started purchasing private properties for their children.

Then this morning, another friend was talking to me at the gym and she, after much homework and planning, is sending her son to a top boarding school in US. This is a 4 year program and it apparently puts one in a very good position to get into a good Ivy league University thereafter. It costs about US80k a year, excluding the travelling expenses. Of course when you get to a boarding school like this, you get a head start not just with your University education but also with the connections you make with all these otherwise connected families who can afford to send their children there. And this is not an isolated case. She tells me all her friends have either sent or planning to send their kids to such boarding schools.

So I wonder and worry what will happen to good, clever and hardworking children when they finish their education here. How will they compete with this other group of people and will they become disillusioned if they see this huge disadvantage they are already at?