From Oxford to Wall Street

By Elliot Gerson
Saturday, November 21, 2009

Tonight, 32 young Americans will win Rhodes Scholarships. Their tenures at Oxford are funded by the legacy of the British imperialist Cecil Rhodes, a man whose life would not be honored today were it not for his vision that young people of outstanding intellect, leadership and ambition could make the world a better place.

For more than a century Rhodes scholars have left Oxford with virtually any job available to them. For much of this time, they have overwhelmingly chosen paths in scholarship, teaching, writing, medicine, scientific research, law, the military and public service. They have reached the highest levels in virtually all fields.

In the 1980s, however, the pattern of career choices began to change. Until then, even though business ambitions and management degrees have not been disfavored in our competition, business careers attracted relatively few Rhodes scholars. No one suggested this was an unfit domain; it was simply the rare scholar who went to Wall Street, finance and general business management. Only three American Rhodes scholars in the 1970s (out of 320) went directly into business from Oxford; by the late 1980s the number grew to that many in a year. Recently, more than twice as many went into business in just one year than did in the entire 1970s.

This break in an almost century-old pattern coincided with great increases in occupational earnings differentials, which have continued to grow, seemingly exponentially. It seems quaint, if not unfathomable, that just three decades ago the differentials in earnings -- generally two- to fivefold between business leaders and doctors or lawyers, or five- to tenfold with professors, scientists and public servants -- were often rationalized by Rhodes scholars as reasonable additional compensation to balance the lower standing of business jobs among their peers.

When differentials could become a hundredfold or far more -- and as investment banking and similar firms started to recruit young Rhodes scholars who had degrees in math, physics or even history, English and theology -- the yawning prospective wealth chasm understandably became impossible for many to ignore. Even for a few of those most deeply committed to other, more public-spirited pursuits, the lure of such rewards, especially as they are reasonably attainable for people of such high abilities, became much harder to resist.

So what is the matter with this picture?

Nothing -- if one believes that such differentials are necessary for our economic system to thrive. But do many believe that differentials need be this grotesquely large to motivate and reward people adequately, if not richly? No; they are that large today simply because they can be that large, not because of some virtuous working of the market. This is not Adam Smith's capitalism. Just as Smith decried the inevitable greed and corruption of monopoly, he would surely rail against today's self-serving and closed systems of compensation review.

Similarly, nothing is wrong with this picture if one believes that changed career paths of a few privileged people is not of any larger significance. Never mind that some have gifts that realistically could be expected to lead to world-changing breakthroughs, cures or innovations; to greater respect for politics; or to hundreds of profoundly moved and inspired students.

Or if one believes that the social benefits, macroeconomic included, that can be expected as a collective consequence of radically more remunerative paths taken will be as great or greater than would have followed from those not taken. (Does anyone seriously believe that? Isn't the innovation that the country needs most for continued prosperity likely to come from scientists and engineers?)

Or if one believes the rules and practices of corporate governance are adequate to assure reasonable compensation practices. (Can anyone maintain they do, given the undemocratic ways in which corporate directors are chosen and elected, and the myriad examples of executive compensation perversely related to shareholder return?)

Or if one believes the fabric of our democracy might not be frayed by a steadily widening gap between the very rich and the middle class, a gap that could become as cavernous here as it already has in some of the world's least harmonious and most dispiriting countries.

Or if one believes that 10 or 20 years down those career tracks, when going back to earlier ambitions is rarely possible, those choices will be the ones that have created the greatest happiness for those individuals.

Many thought a silver lining of last year's financial crisis -- or from the populist rage that flared against Wall Street excess and to profits born not from creativity but from leverage -- would be that earnings differentials would return from obscene to merely enormous levels, if not to the very generous multiples that had long been adequate to fuel a vibrant economy. Well, the hyper-bonuses are back -- astonishingly having been made even easier to achieve with taxpayers socializing the downside risks. And the crisis? What crisis?

So how many more of America's young and brightest will ask themselves what kind of chumps they are to give up the chance to earn 100 or 500 times as much as their mentors, their doctors, their favorite professors, their idols and heroes?

The writer is American secretary of the Rhodes Trust and executive vice president of the Aspen Institute.

© 2009 The Washington Post Company