Piketty’s Capital in the Twenty-First Century has taken the world by storm. Published earlier this year, it remains at the top of The New York Times bestselling political and business titles and in the top five of its non-fiction lists for June.
It’s not what Piketty says that is new. For some time now he and many other social scientists have been analysing the polarisation of social inequality in advanced capitalist countries in Europe as well as North America. Piketty’s Capital has attracted interest partly due to its empirical strength: historical and standardised statistics drawn mainly from the World Top Incomes Database and compiled over decades by around thirty researchers – including, of course, Piketty himself. All the statistics are accessible online.
His carefully constructed narrative draws on literary classics such as Austen and Balzac, as well as stark lines on graphs. It disrupts the trickle-down-we-can-all-make-it-if-we-work-harder and capitalism-is-the-best-of-all-worlds arguments of neoliberals with solid fact: after a turn in the tide during the 1970s and 1980s, inequality in many advanced capitalist countries had, by 2010, returned to the extremes of the late nineteenth century.
‘I knew that!’ announced my friend, over tea in a café. ‘I just knew it!’
Ah, but to have it confirmed in numbers and print.
Indeed, Piketty’s analysis is alarming because he explains the diminishing inequalities of the middle decades of the twentieth century by the destruction of capital wrought by the world wars, which deprived the really rich (and the rentier class) of their asset and income base. In other words capitalism inherently develops deep inequalities: inequity is its natural state and only an ‘unnatural’ period of devastation allowed us to think otherwise.
More alarmingly, Piketty argues that wealth is begetting wealth at a rate of knots. On the one hand, being very rich offers ample scope to enrich one’s coffers. On the other hand, few governments apply sufficiently progressive taxation policies to redistribute profits rationally. The middle class seems relatively stable in its share of wealth and incomes but the very rich have absorbed wealth that might have been shared more with the bottom 50–60 per cent, who are the real losers. Piketty refers to this as incipient patrimonial capitalism.
From 1970 to 2010 private wealth doubled from 2–3.5 years worth of national income to 4–7 years’ national income within all the advanced capitalist countries in his study. According to Piketty, slower population and economic growth as well as a greater rate of savings meant an increase in the ratio of long-run capital divided by income while privatisation (of public assets) and real estate price rises combined to produce this polarisation.
Piketty uses Austen and Balzac to illustrate his points but argues a crucial distinction between their time, of relatively stable prices and salaries, and ours, where inflation, especially since the mid-twentieth century means heightening prices and wages so mentioning someone’s salary rate doesn’t mean much. [But, is Piketty right to say that ‘money — at least in the form of specific amounts — virtually disappeared from literature after the shocks of 1914–1945 … and never truly re-emerged’? Naguib Mahfouz is an exception, according to Piketty. But I would like to know — from the vast literary knowledge of Overland’s readers and writers — aren’t there others?]
Piketty emphasises that many of the very rich now inherit the wealth that easily produces more wealth. They can easily live on a fraction of their income and, because they have sufficient financial wealth to out-compete other entrepreneurs, can skew economic dynamics as well as make social structures more extreme. The very rich are not just owners but include ‘supermanagers’ — one is tempted to rename them ‘superman-agers’ — who are the people on outrageous salaries who have given Wall Street its bad name. As the top marginal income tax rate dropped for high salary earners, they became hungrier to earn as much as possible.
None of this augurs well for neoliberal policies, like those advocated by Prime Minister Tony Abbott has, which favour the wealthy.
It’s understandable that Piketty’s findings and conclusions are attractive to the increasingly disaffected senior journalists losing their jobs, to economists in universities suffering successive retrenchments, and to the plethora of professionals and managers in all kinds of sectors, because it is only the ‘supermanagers’ and the filthy rich one per cent – or, more specifically, the 0.1 per cent – that Piketty really attacks.
Piketty’s policy proposals — to tax inherited wealth, capital assets and income in order to improve public education, health and retirement incomes — neatly serve to benefit all but that one per cent. For politicians and political parties this must seem like good news: distributive reforms that would potentially have massive support and with a ready financial source to cover their costs.
Furthermore, Piketty’s perspective and solutions are international. Arguing that ‘global inequality of wealth in the early 2010s appears to be comparable in magnitude to that observed in Europe in 1900–1910’, he suggests that ‘a progressive annual tax on the largest fortunes worldwide’ would be ‘the only way of democratically controlling this potentially explosive process while preserving entrepreneurial dynamism and international competitive openness’.
As such quotes make clear, Piketty is not a Marxist, socialist or even someone using frameworks developed by non-Marxist heterodox economics — another reason, no doubt, that he has charmed the press, his profession and readers.
How such a progressive global tax might apply is not convincingly argued. Much of his discussion reverts to his research agenda, pointing out that the task of identifying, collecting and quantifying wealth and the wealthy is marred by inadequate data. If a progressive global tax on the rich were introduced, he even suggests applying a 0 or 0.1 per cent tax for all assets over, say 1mn Euros, just to get more reliable and comprehensive data to inform appropriate policy making.
Although there have been attacks on his data and analysis, so far none have appeared fatal. Meanwhile the 99 per cent of us have nothing to fear but a loosening of our chains.