Interesting anecdote that illustrates the different approach to wealth in China and the US.

A few months ago I was having dinner in Shanghai with a very wealthy friend of mine. We’re talking about someone with a net worth of 9 figures, in dollars. He was telling me he was thinking of moving to the U.S., to California to be precise.

“Why?” I asked him, pointing out that he’d made his fortune in China so surely he must be pretty satisfied with the country. He went out to explain that basically, with his wealth, his children could have enormous advantages for their education in the U.S. vs the average kids there, which wouldn’t be possible in China. Indeed, his plan was to buy a house in the very best neighborhood in California, get them into the best schools, pay the best tutors money could afford and they’d eventually end up getting into the most prestigious American universities and having very successful professional lives. Pretty sound logic actually.

Why isn’t this possible in China? Because China has invested considerable efforts – and continues to do so – to ensure that wealth couldn’t “game” the education system. This includes:

1) When you buy a property somewhere, you aren’t guaranteed assignment to the corresponding local school. It used to be the case and property prices around public schools that had a good reputation skyrocketed until there was a legislative change that meant you could have your kids assigned to just any school in the wider area. I actually have a friend who bought a studio flat – something like 15 sq meters – for an insane price (can’t remember anymore but we’re talking millions of RMB) right in front of Shanghai’s best public school right before the change in legislation was announced (which she didn’t know about). From one day to the next, her property lost something like 80% of its value 😅

2) You can’t game the system by putting your kids into private schools. Private schools do exist but there’s a lottery system that means that if you put your kid in a private school you effectively cannot choose which one, it is determined by the lottery. Which obviously makes it much less attractive as your kids might end up in a mediocre private school.

3) Tutoring has now famously been entirely banned as an industry in China, so it is not possible to pay expensive tutors to have your kids gain a competitive advantage.

And there are scores of other measures… To be fair, it is still the case that wealth does give you an advantage. For instance there’s a large underground tutoring industry: you can theoretically hire a “maid” with a PhD… It’s basically a game of whac-a-mole between China’s wealthy and the government where the former always find loopholes and the government always moves in to plug them.

But there’s no denying the fact that all this makes it considerably harder for a wealthy person in China to give their kids an unfair advantage in the education system compared to the average Chinese kid. And that it therefore does make good sense for them to move to the U.S. where not only there are little to no restrictions in this regard – in fact the contrary is true: the system is gamed to favor the wealthy – but also, due to the Chinese culture of considering education as a quasi-religion, they naturally have an advantage.

This all raises the bigger question of the reproduction of elites. In the long run, which society is more sustainable and fares better: one that does little to avoid the reproduction of elites like the U.S. (which – contrary to the “American dream” narrative – is one of the high-income economies with the lowest rates of relative upward mobility: https://cepr.org/voxeu/columns/intergenerational-mobility-across-world-where-socioeconomic-status-parents-matters) or one that actively fights it to enforce, to the extent possible, a meritocracy? The answer, at least to me, sounds obvious: I don’t think that kids from wealthy parents are inherently smarter or more deserving than other kids; and society as a whole benefits from selecting the best out of the biggest possible pool of talents. Plus I actually do think that kids from disadvantaged families – those who “ate bitterness” as children – are “hungrier” and if society allows them, will end up being more productive than their counterparts born with a silver spoon. Lastly there’s the question of representativity: you want elites who come from the people and understand life at the bottom…

What my friend’s story illustrates is actually even more than this: in the U.S. you don’t even only have a reproduction of the local elites but you also have elites from other countries who come to the U.S. because it’s easier to reproduce there! And this arguably makes the space for “non-elites” to rise to “elite” level even smaller, since you can only have so many elites in a country… And paradoxically then makes it easier for countries like China to promote upward social mobility since (at least some of) their elites go reproduce elsewhere…

To conclude all of this is of course somewhat theoretical. China still has a lot of problems with inequality and America does still have a lot of opportunities if you work hard… But at the end of the day it’s a question of culture: there is undeniably a growing culture of enforcing meritocracy in China, trying to make the country fairer (sometimes with questionable initiatives like the complete shutdown of the tutoring industry, but at least they’re trying) whilst America is culturally becoming somewhat of a institutionalized plutocracy, where the “American dream” is increasingly… a dream (!) more than a reality.

These types of cultural evolutions take time to make a dent in society as a whole, often 1 or 2 generations, but over time are extremely consequential and potentially very corrosive. You want your society to be perceived as fair and meritocratic by its people, especially if it’s how you define yourself, because otherwise you cultivate cynicism and resentment.

Vir: Arnaud Bertrand