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Progress and poverty: the Piketty effect

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.

Picketty F8

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.

Pickettty F12

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.

Overland is a not-for-profit magazine with a proud history of supporting writers, and publishing ideas and voices often excluded from other places.

If you like this piece, or support Overland’s work in general, please subscribe or donate.

Anitra Nelson is an honorary associate professor at RMIT University. Her publications include , Marx’s Concept of Money: The God of Commodities and Steering Sustainability in an Urbanizing World: Policy, Practice and Performance.

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Comments

  1. that little closing phrase, ‘data and analysis’ (measuring deviances from an unarticulated norm which doesn’t exist), gives the game away – all corporatist bs

  2. I completely sympathise with your antipathy to quantitative data yet, right now especially, I think anything that can prove to capitalists and neoliberals that their system is completely unfair is grist for the mill.

    It’s not just the spurious nature of data analysis but it’s also the fact that regular ‘standardisation’ procedures can never overcome that a dollar is worth different things in different times and places. Though treated as a standard, money is really no such ‘thing’ and represents different series of use values (goods and services and means of production).

    Nevertheless in a capitalist context if one person has one hundred times or one thousand times, let alone one million times, more money than the next person we know they have more power.

    BTW Piketty dumps on Marx purely on the basis that he didn’t have access to good statistical data. That many of Marx’s analyses are still relevant surely says something loud and clear to arrogant statisticians?

    • good points – well made – which i accept – and sure, mountains of money equate to mountains of power under current regimes driven by the movements of capital – but if it (the unconscious) comes to it (its materialisation) – absolute environmental crises etc – no statistic – no representation of what money might stand for – will be worth more than the material of which money is composed (the ‘thing’): paper to burn for food and warmth, metal to melt and mould for whatever survival purpose – which marx also banged on about too if i remember correctly

      • Piketty almost completely ignores the environmental crisis we are living, only seeing it fleetingly as a matter at which one ought to through some money! Yes, I think that the approach, analyses and solutions of Marx show that he didn’t see either the state or money as ways to achieve socialism/communism, rather both as depriving people of real, democratic and direct power. That’s why the statistical exercises Piketty and others involve themselves in are not really relevant, or only relevant to critics who want to make capitalism cleaner, more functional, even rational. Money is simply a claim on market offered (exchange) values. In other words it is a social agreement and activity. Without the agreement and activity it is nothing so political, capitalist and socialist strategies that treat money as some kind of neutral tool or even useful in a transition are muddle-headed. In my reading of it Marx’s analysis in ‘Capital’ (I) starts with money on purpose: here is the start and the core of the problem (of capital-ism/ists).

        • Great response – and thanks – for a highly valued and appreciated piece. I look forward to reading more.

  3. Its hardly surprising that inequality conditions now rival those of the late nineteenth century as we have gone out of our way to try to reproduce the conditions of that era in every other respect.I dont particularly buy his idea that it was the World Wars that stopped inequality from rising – makes no sense.Instead it was the fear of communism that caused the ruling class to make so many extraordinary concessions to greater equality and equity. The current weakness of the Left and its inability to provide any sort of effective countervailing force on issues that really matter is the principal reason for the return to business-as-usual in capitalism.

  4. Hi Anitra,

    Thanks for the article, some interesting observations on Piketty and the debate around his ‘Capital’.

    Its curious, you know, because contrary to Piketty’s assertions Marx paid considerable attention in major works like Capital to the available statistical evidence. Took’s History of Prices is drawn on extensively to show the validity of Marx’s account of price movements, Government reports to show wage levels, household incomes, etc, etc. Its a truly ahistorical criticism, as I’m sure you agree. It actually makes me really wonder how much Marx he’s actually read, let alone understood.

    But two things are being glossed over in most of the discussion of Piketty, and I’m curious as to your thoughts on them. First is Piketty’s frank lack of a meaningful ‘short run’ account (especially of the drivers for capitalist crises). He treats factors like the ‘savings rate’ as essentially exogenous, whereas in real life, the proportion of earnings saved and reinvested is necessarily linked to the rate of profit, to the expectations investors have about the return on their prospective investments. His long run observations largely hold, but his categorical statement that short run factors are irrelevant to the long term is deeply problematic, when his ‘fundamental laws’ rely on factors that are clearly based in the short run considerations he ignores.

    The second is the fundamentally pro-capitalist nature of his prescriptions. His proposals regarding ‘wealth taxes’ are offered, it seems to me, in bad faith. The necessary political circumstances for a global wealth tax are surely going to remain elusive. Yet despite showing the fundamentally anti-social nature of the system, its built in tendency to relative immiseration of the working class globally, Piketty draws back from considering any alternative social system, or any means of getting there. The workers movement is wholly absent, but so is any alternative actor that could bring about even his prescriptions. The Wealth Tax thus becomes a kind of chimeral ‘silver bullet’ to be wielded, in the context of the shifting discussion among global institutions about ‘inequality’, as a safe and legitimate criticism that avoids raising the truly uncomfortable questions for those organisations and the classes that stand behind them.

    And if a global social movement capable of imposing a wealth tax was to emerge, why on earth would it leave a system that would necessarily try to remove the wealth tax, and continue even with one to tend towards inequality, alone? Why would it set its sights so low?

    Look forward to your thoughts.

    Cheers,
    Marc.

  5. Hi Joe — I agree with you on the unfortunate tango with capital we continue to dance. Can it really be right that we don’t have any chains but “chose” to consume and work? Yes, the statistics neatly follow the policy changes. But I’m not sure about not believing in capital being smashed by the wars. What Piketty does show in a graph on p.316 is that this was all only mildly true for Australia, which proves his point, because capital was not destroyed here like it was in Europe. In fact Mike Berry and I will talk more about the snippets in Piketty on Australia in particular at our talk at the New International Bookshop on Wednesday 2 July at 7 to 8.30pm. You know, it’s pretty alarming (for the rest of the world and us), but statistically speaking we seem to be relatively more equal here than they are elsewhere!

  6. Hi Marc

    Yes, totally agree on the problem with the short-run being glossed over in favour of the long run. In fact, I think Piketty shows us here that he can be as much a theorist as the best of them even though he sells himself as empiricist.

    When Isaac Chotiner asks Picketty in a New Statesman interview about Marx’s influence on him — ‘obviously with the title … you were tipping your hat to him in some ways’ — the author stalls with, ‘Marx?’ Then he admits that he ‘never managed really to read’ Marx’s Capital. (He was entertained, though, by The Communist Manifesto.) Yet, as you point out Marc, Piketty feels quite confident in asserting that:

    “The big difference is that my book is a book about the history of capital. In the books of Marx there’s no data.”

    See: New Statesman 6 May 2014, republished from the New Republic 5 May: http://www.newrepublic.com/article/117655/thomas-piketty-interview-economist-discusses-his-distaste-marx)

    Also Piketty gives us some lessons on Marx and includes Capital in his footnotes!

    If Piketty, his economic peers, the journalists or some of the literally hundreds of thousands of people who’ve bought his work had read Marx’s Capital, none would find Piketty’s work surprising. In Marx the dynamic between the waged and the owners of capital is as clear as the movement of a see-saw. And, not only are you right to point out that Piketty’s call for a progressive taxation system — indeed global wealth taxes — to curb the inherent greediness of capitalists would be well nigh impossible to implement, but also it would be met cynically by Marx.

    Marx’s and Engels’ address to the Central Committee of the Communist League in London Marx 1850 rebuffed such ‘democratic petty bourgeois’ solutions as simply attempting to make ‘the existing society as tolerable for themselves as possible… the democratic petty bourgeois want better wages and security for the workers; in short, they hope to bribe the workers’.

    This is a middle-class response to the 99 per cent, to Occupy! And, you are right, had Piketty read even just Volume I of Capital he would have found that Marx trawled through and referred to a lot of parliamentary, official and authoritative data, including statistics, which formed much of the raw material of his analyses.

  7. You might be interested in Andrew Leigh on Piketty in the June issue of The Monthly because he goes into his take on inequality on Australia and compares it with Piketty’s. He wrote ‘Battlers and Billionaires’ and is able to question Piketty as well as finding Piketty a challenge to his own approach. I don’t find either Piketty or Leigh satisfactory, especially in terms of their conclusions, but I continue to find work in this area intriguing and significant for more radical interpretations and strategies. Great to make these international issues more regional.

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