It takes a village to raise a millionaire
When Meizhu Lui visited an alternative high school in Boston - a place where youths are often assigned after being kicked out of a regular high school for behavioral or other problems - she asked a class: Who expects to be a millionaire?
The answer was telling. About a third of the students held up their hands. Although mostly poor and disadvantaged, these young Horatio Algers clung to the ideal of America as the land of opportunity (though mostly through sports and music rather than business).
Unfortunately, their prospects of reaching the top of the economic ladder are fading in the United States. It's becoming a nation of more rigid inequality, starting at childhood. That, anyway, is the conclusion of some recent research.
A new report by Ms. Lui's United for a Fair Economy (UFE), a liberal advocacy group based in Boston, done in conjunction with an affiliate, Responsible Wealth, finds that economic success usually depends on help from society, and often more on wealth and privilege than talent and dedication.
For instance: Almost a third of the Forbes 400 richest people were born onto that list, with an average net worth of $2.6 billion. Another quarter inherited a small business, oil lands, or perhaps had well-to-do parents able to provide an expensive education and family friends helpful in a business career.
Meanwhile, income mobility between generations has been falling, concludes Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago, in a 2003 paper. Most children of rich parents stay rich, and children of the poor stay poor. When compared to Canada, Finland, and Germany, the US stands out for "its relative lack of mobility," he says.
That implies that the increased inequality in incomes in the US in the past few decades, "is likely to remain a feature of the US economy for some time," he adds.
Such conclusions are troubling for a culture that for so long has believed in the self-made man and woman.
And yet, as even some rich people admit, it takes a village to make a millionaire.
"Society is responsible for a very significant percentage of what I've earned," Warren Buffet, the wealthy founder of Berkshire Hathaway, has said.
"Lots of people who are smart and work hard and play by the rules don't have a fraction of what I have," Eric Schmidt, the CEO of Google, told Forbes Magazine in 2001. "I realize I don't have my wealth because I am so brilliant."
Dr. Schmidt is likely to become a billionaire overnight when his firm goes public, probably later this month.
Of course, individuals can and do make important contributions to the economy and society by working hard and intelligently. From Carnegie and Rockefeller to Sam Walton and Paul Allen, the US boasts a pantheon of corporate moguls who rose from modest beginnings.
But the success of the wealthy is built on a foundation provided by society and its many members, argues Chuck Collins, one of the authors of the UFE study. The study goes through case after case of how society stands behind wealthy individuals, and, indeed, of how often the rules are tilted in their favor.
Google's existence, for instance, hangs on the fact that the federal government spends tens of billions of dollars a year on research, mostly in grants to universities, including for creating and improving the Internet.
Also, wealthy CEOs depend on a multitude of brilliant and less brilliant employees, plus a system of corporate governance that is stacked in favor of excessively large salaries.
Many of the rich "were born on third base," the study says.
For example, prosperous parents give their children a head start by buying homes in a good school district, financing college, and contributing to the purchase of a child's first house or condominium.
There's nothing wrong with that.
But 75 percent of Americans inherit nothing. They, too, may benefit from the free-enterprise system, financial markets, democracy, law and order, a public school system, libraries, museums, and other aspects of modern society. It can be argued, though, that the rich especially gain from this system.
"The notion that wealthy individuals might have an obligation to pay something back to society is a radical departure from today's individualistic, antigovernment ethos," writes Scott Klinger and two other authors of the UFE study. "Many successful people view government and society as irrelevant to their good fortune, or worse, a hindrance. They attribute their success to their own character, values, and performance."
The question is: If the wealthy gain more than others from the system, how much should they give back?
In 2001, with President Bush's tax cuts in effect, the wealthiest 1 percent of households paid 41.7 percent of their income in federal, state, and local taxes while the middle tier of householders paid 28.5 percent, according to one study. But the share paid by those super-rich will fall to 36.1 percent by 2010 with only a slight decline for the middle class.
Whether that lower rate will prevail depends on the fate of the estate tax, which is slated to disappear in 2010 then reappear in 2011. The Bush administration wants to eliminate it permanently. UFE and other liberal groups want to preserve it, which would again bump the tax rate for the superwealthy above 40 percent. Responsible Wealth has persuaded 1,700 millionaires and billionaires to sign a petition against its abolition.
As for those at the bottom of the economic heap - like those students at the alternative high school in Boston - the climb upward looks longer and harder than ever.