Capital and Ideology --- Thomas Piketty

 

Professor Thomas Piketty has once again, in 2020, published a 1000+ page book that educates, challenges, provokes and disturbs. The book is simply and clearly written, cogently and convincingly argued with loads of data and details. It demands stamina on part of the reader and offers in return a serious educational experience-a very high return on the effort expended.

Piketty’s focus is on the nature and evolution of inequality regimes across space and over time -- from the pre-modern world to Donald Trump and from China and India to Russia, Europe, Brazil and the USA. An ‘inequality regime’ is defined as a set of ‘discourses and institutional arrangements’ that both ‘justify and structure extent inequality’ -- social, economic and political -- in a society.

The principal takeaway from this book-for this blogger- is that there is always hope; nothing is inevitable and historical determinism is a myth. Sweden was an extremely inegalitarian society till about the early 1920s, after which, quite unexpectedly, it took a radically different path and became over time not only a very prosperous, but also one of the very egalitarian societies in the developed world.

This, however, is not a widespread phenomenon and the reverse too happens, and far more often. From about the mid-twentieth century till around the 1980s inequality in both income and wealth declined in Europe and the USA: the destruction of war in Europe, steeply progressive taxation, nationalization of various sectors in many countries, minimum wage legislations, the emergence of welfare states, et al led to this outcome. This, however, was reversed thereafter and a renewed sacralization of property, moderation of progressive taxation, globalization, deregulation of financial sectors and the ‘tyranny of meritocracy’ -- to steal a phrase from another book -- have propelled a drastic about turn.

And this leads us to the second major takeaway from the book: measures to bring about an egalitarian society and build a welfare state are not inimical to growth; history teaches that such measures led to greater growth than the subsequent freeing up of the markets, reduction of tax rates and the liberalization-globalization paradigm.

US per-capita income grew at 2.2% pa between 1950-1990 and only 1.1% pa between 1990-2020 while inequality increased significantly, real minimum wage declined, and top income tax rates fell from an average of 72% in 1950-90 to 35% in 1990-2020.

In Europe too, the same pattern emerged -- reduced inequality and fiscal progressivity was associated with higher growth between 1950-1990 and globalization, meritocracy and reduced rates of direct taxation with a slowing down and growing inequality.

The lesson here, of the value -- material and moral -- of egalitarianism, is a very difficult sell in an environment powered by unrestrained greed. Regardless, the facts are there for all to see. An interesting snippet of information here—labour participation in management- seats on the boards of corporates is a given in Germany and Sweden and both economies are none the worse for it, to put it mildly! Co-management is not some pinko-idealist fantasy but a reality in two strong industrial economies.

The lessons of history, especially as regards the ‘quasi-sacralization’ of property are both disturbing and thought provoking. When the British abolished slavery in 1833, the slave owners were indemnified and compensated for their loss of property!! About 20 million pounds sterling (approx. 5% of National Income of Britain at that time) was paid to about 4000 slave owners as compensation for their loss; the slaves of course were not paid any compensation! The French did the same when they abolished slavery and gave Haiti its freedom! Incidentally, when the British, helped by the French, forced China to open up to opium imports (the Opium Wars of the mid 19 Century) the Chinese had to pay a war indemnity to the winners! The cost of the wars was a business expense paid for by the looser. Free trade is both ideology and business, and perhaps more business than ideology.

Marked inequality in education systems, not just in US and British higher education, but even in French state run systems at all levels, is detailed by the author and highlighted as one of the basic drivers of modern inegalitarianism. Rich parents are almost a necessary condition for children to acquire ‘quality’ higher education, which in turn determines salary levels and in turn contributes to the low levels of intergenerational mobility and to income and wealth inequality.

Some numbers are illustrative -- between 2000 and 2020 the top decile in the US acquired 45%-50% of total income, while the top centile, 20%! Wealth inequality is greater than income inequality and the top decile had 70% to 75% of all private property!

The basis for the discontents of globalization/deregulation et al are fairly evident.

Besides shining a hard clear light on the evolution of inequality regimes, the author offers possible solutions too -- reasoned and not unreal possibilities culled, for the most part, from real world examples.

Prof. Piketty paints on a very large canvas but a great deal of his focus is on the US and Europe in general and France in particular. Nonetheless, there are important lessons to be learnt from working through Capital and Ideology. The task requires both time and stamina, but for anyone interested in the issues he addresses, the effort is enormously rewarding.

Happy reading.