The Meritocracy Trap – Student Loans and Status Hierarchies

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Unless you love numbers, it isn’t easy to find a book on finance that is a page-turner. That’s why I was fascinated by William Thorndike’s ‘The Outsiders.’ In fact, at one of his legendary shareholder meetings, Warren Buffet said that this was one of the most significant books in America.

William has featured eight CEOs whose shares beat those of industry rivals and the broad market by a significant margin over a long period of time. What piqued my interest, though, was the fact that just two of the eight CEOs featured had MBA degrees.

The book also influenced Saurabh Mukherjea, who wrote the best-selling ‘The Unusual Billionaires.’ Saurabh’s book also includes seven Indian businesses that achieved a 10% growth and a 15% (ROCE) Return on Capital Employed over a 10-year period. Not surprisingly, Saurabh’s book follows a similar pattern for the CEO’s educational qualifications.

Today, a sizable segment of the population that I know is acquainted with the term student loans. They have either paid off or continue to pay off their school loans after a few years of employment. Growing up, we believe that the educational system was supposed to be meritocratic. That irrespective of which part of the country you come from, whether it is Mumbai or Bhagalpur, you have an equal chance to opportunities.

The whole idea of meritocracy was building around the fact that you can do well in life if you work hard and have a decent IQ. That definition was also expanded to include cognitive abilities, extracurricular talents, and socially valuable personal qualities.

But the challenge is what authors like Daniel Markovits point out. Meritocracy has degraded into precisely what it was intended to oppose: a vehicle for the concentration and generational transfer of wealth and power.

Meritocracy Trap: Status Hierarchies

For an average student growing up in India, you would have often heard, “Beta abhi bas padh lo, baad me bhot aram hai.” We are taught to think that we will succeed in life if we learn well and work hard. That all attributes extraneous to merit, like gender, skin color, physical ableness, and family income, are not supposed to constrain the choice of educational pathways.

That’s when you began to fall into the meritocracy trap.

But as you navigate through the educational system, you realize that the sorting hat doesn’t always listen to you. An average MBA program today charges anywhere between 15-20 lakhs. Students enrolled in such programmes are required to take out a sizable student debt, which they will likely have to repay for at least the next 10 years.

But as they pass out, they realize that the average salary paid to them is 1/4th the size of their loan, sometimes even lesser. If you somehow manage to survive on the salary, you are then exposed to class and status hierarchies that have been created by so-called elite educational institutions.

While most organizations advocated hiring and promoting based solely on merit when hiring for important positions, they inadvertently hire only from elite business schools. This makes their life easier for recruiters as they don’t sit and sort through thousands of resumes.

The educational background acts as the first round of filter; all that sweet talk about the organization being meritocratic goes out of the window. If you somehow manage to get yourself shortlisted for the role, the recruiter will ensure that you are paid a lesser salary since you are not from an ivy-league institute.

The ultimate test of meritocracy for such organizations is command over the English language.

Some of these organizations would go on to write in their job description that the candidate shouldn’t have Mother Tongue Influence (MTI). While for some roles, this could be critical, but again, this acts as a filter to eliminate deserving candidates.

You get absolutely no credit, no matter how hard you worked on improving your language skills, irrespective of your background, educational qualification, and other factors. When you are not rejected based on your educational credentials or language abilities, you are discriminated based on your gender, physical ability, or skin color.

Organizations that do this have their own absurd logic to defend their hiring policies. Some of them blame the educational system for producing students that are unemployable. Only a few businesses have taken action to address the meritocracy trap and to bridge the divide.

Zoho has created Zoho University, where it trains students from underprivileged backgrounds and employs them at the organization on competition of the course. There are only a handful of companies that are trying to replicate Zoho’s approach.

Most other organizations have their own training programs that they use to reorient students, but most are only designed to serve the hiring organization. A lot of such courses prepare you for a role that doesn’t exist outside the hiring organization.

Education Bubble: Rising Student Debt

India has a total education loan outstanding of Rs 84,965 crore as of December 2020. Surprisingly, MBA’s don’t make it to the top of the list. Nursing and engineering students are among the top contributors to education loan debt. Followed by medical and MBA students.

It seems like nobody has a solution to how to counter the status and class divide that education creates. Most of us look at the government for a solution, but the divide continues to widen every passing year.

While I was part of the test preparation business back in 2010, I saw the CAT number dip as recession wreaked havoc at campuses. The CAT registrations numbers dipped from 2.3 lakhs in 2009 to 1.85 lakhs in 2010.

Today those numbers are back to 2.3 lakhs if you go by 2020 registration numbers. It seems like more students will fall into the meritocracy trap. As education continues to sell the promise of a better life, and with VC funding now pouring in, the education bubble is only going to get bigger.

In some ways, what China is doing to fix the issue might not be a bad idea; while it will erode investor wealth, it might do more good in the long turn. But with China, you never know whether there is more to read than what is being said.

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