A (Largely) Functional World: Part 2
Programming Note: As a reminder, every Sunday, I write pieces that are predominantly based on personal experiences which may or may not be loosely connected with investing. If you are reading MBI Deep Dives everyday, I think it would be rather useful for my readers to understand my personal lens a bit better since that presumably affects (at least in some capacity) the way I analyze businesses as well.
Early this month, I wrote a piece making the case that the world is (largely) functional by pointing out the elevated success rate of rapid social mobility that I have observed among my talented peers despite being born in a second-tier city in Bangladesh. I was careful not to make too sweeping a statement. I narrowed my case to point out that it is perhaps underappreciated by many that as long as you are reasonably intelligent, you have a pretty good shot at social mobility regardless of where you were born. That, of course, wasn’t always the case and the rate of improvement the world has made in this regard is what I believe to be underappreciated. In fact, the first time I heard the story of the great mathematician Ramanujan, I wondered how the world must have missed out on numerous great mathematicians and scientists in much of the history of our civilization just because they were not born in the “right” place! Thankfully, Ramanujan was agentic enough to reach out to G.H. Hardy at Cambridge and the world could benefit from Ramanujan’s unique insights.
However, a reader later quipped to me that isn’t intelligence itself a great Ovarian lottery? How functional is really the world if such Ovarian lottery dictates our fate? It is an understandable desire to want to give everyone a fair shot regardless of intelligence. Many people perhaps gravitate to a society that is designed based on Rawls’ philosophy of “veil of ignorance”. But I have often wondered whether too much dogmatism around fairness may lead us to the world of Harrison Bergeron.
Even though I don’t want to live in a society that is obsessed with fairness by finding the lowest common denominator among its population, I myself also wonder that the world may be lot less functional if you failed the Ovarian lottery in intelligence. It is perhaps in the realm of possibility that while the world made enormous progress in making it more functional for intelligent people regardless of their background, it may have become less hospitable for others. In fact, I came across this book a couple of years ago by Gregory Clark: “The Son Also Rises” which did make me question the typical narrative that the wealthy loses much of their wealth by the third generation.
Clark argued that it takes 10 to 15 generations (300 to 400 years) for families at the extreme ends of the socioeconomic spectrum to regress to the mean. He claimed this slow rate of mobility is a universal constant, roughly 0.7 to 0.8 across generations (meaning 70% to 80% of a family’s underlying status is transmitted to the next generation). Conventional mobility studies look at parent-child correlations in income or education and find correlations around 0.3–0.5, suggesting fairly rapid regression to the mean.
Clark argued this dramatically overstates mobility because single-generation data is noisy. To avoid the “noise” of short-term parent-child income fluctuations, Clark went for a novel empirical technique: tracking rare surnames over centuries. By examining the concentration of specific surnames in elite institutions (e.g., Oxford and Cambridge graduates, medical associations etc.) against their proportion in the general population, he mapped long-term status persistence. He looked at this in multiple regions.
Take India, for example. For India, Clark used Bengali surnames as his anchor. He identified a set of high-caste Kulin Brahmin and Baidya surnames (Mukherjee, Banerjee, Chatterjee, Bhattacharya, Ganguly, Sengupta, and similar) that were elite markers in pre-colonial and colonial Bengal, and contrasted them with surnames associated with lower-caste and Muslim populations. He then tracked their representation across generations in elite registers: e.g. physicians on the Indian Medical Council rolls, judges of the High Courts, professors at top universities, and Bengali engineers and civil servants from the late 19th century through the 2000s. The Kulin Brahmin and Baidya surnames are wildly overrepresented at the start of the series (often 10x+ their population share) and decay only slowly despite Indian independence, and affirmative action.
Based on his data, Clark made a pretty bold claim that the underlying rate of mobility is immune to social engineering. He argued that modern welfare states (Sweden), communist revolutions (Qing vs. Maoist China), and democratic capitalism (the US and UK) all exhibit the same sluggish mobility rates. Clark thought the common denominator in all these cases was “social competence” i.e. some bundle of cognitive ability, work ethic, and behavioral traits transmitted across generations.
One of the challenges that I have observed kids born in less fortunate circumstances is that their parents can often be awfully unfamiliar with the world of success. While my parents knew to instill the value of formal education in me, my father’s wildest dream around economic success for his kids appears to become a government civil service professional in Bangladesh. He obviously wanted the very best for me, but the “best” in his world could have held me back much more than he might have imagined.
I often joke with my friends that if you are born in a less fortunate circumstances, you would be better served by looking outside the imagination available at home. On the other hand, if you are born into a more fortunate circumstances, your parents may impart wisdom in dinner table that can guide you for decades to come. Even in that case, the timeliness of such guidance can depend on the volatility of the world itself. If a world three decades from now is largely an incremental progress from here, our advices for our kids can retain a large fraction of the value. However, if the world becomes much more volatile in the coming decades, especially because of AI, today's social competence may be of little use. and our kids may need to prepare themselves fundamentally differently to navigate such a distinctively different world.
To be fair, if Gregory Clark were writing an addendum to his book today, he would likely argue that AI will have zero impact on the long-term rate of social mobility. The striking feature of his data is its insensitivity to enormous structural changes. He looked at the printing press, mass literacy, industrialization, universal schooling, two world wars, and the internet. of course, most of these were supposed to be a great leveler and yet, none visibly moved the underlying coefficient of “social competence” in his data. So, the base case perhaps should be that AI will be no different.
However, historically, elite status has been protected by moats of credentialism and exclusive access to high-level cognitive training. A vast amount of underlying “social competence" is perhaps just access to institutional knowledge. A great deal of "social competence" in Clark's sense is tacit i.e. it's knowing which questions to ask, which paths exist, which moves are available, what "people like us" do in this situation. This kind of knowledge has historically been almost impossible to transmit outside of close relationships because the recipient doesn't know what they don't know; they can't search for the answer because they can't formulate the question. AI is unusually good at surfacing this kind of meta-knowledge precisely because it can respond to vague, malformed, embarrassing questions and progressively refine them into useful ones.
If AI makes these skills universally accessible at an eventual marginal cost of zero, perhaps it will create such volatility in the “social competence” layer that the world may become finally (largely) functional for people despite not winning the Ovarian lottery of intelligence. We don’t quite know how and where the value will accrue to what skills in such a world decade(s) in advance. I don’t have a lot in common with AI doomers, but even though there may be some merit in worrying about AI’s existential impact on society, I also wonder to what extent it is more of a reflection of people’s concerns about gradual slipping of existing social competence. Just as Uber drivers cannot possibly be a big fan of rising Waymos in the city, can the status quo winners of cognitive ability be truly welcoming of an AI revolution that may make their very skills less rewarding?
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