(September 2019, Harvard University Press, 1150pp) Thomas Piketty became globally famous with his 2013 bestseller Capital in the Twenty-first Century. The significance of that book is that it brings back the issue of wealth and income inequality into the focus of the economic mainstream, from where it had been previously been externalised, to sociology and social policy, two disciplines that many mainstream economists had looked down upon and did not follow. Without justification, we may add, as sociology often has more to say about existing society than economics, a highly abstract discipline whose models rely on more of a surrogate reality than engaging with the real world. Importantly, Piketty was able to drag back the issues of inequality and justice into the economic mainstream after the 2008 financial collapse, with a lasting effect. Examining Europe and the United States from the 18th century onwards, he finds that the initial phases of capitalism had been very unequal and unjust. Only the era of the welfare states after WW2 permitted enough redistribution to enable people born at the bottom of society to rise up. In conclusion, capitalism only ever comes close to its professed rags to riches morality in case it is coupled with a redistributive regime. Once this redistribution is eliminated, which is what happened with the onslaught of neoliberalism from the 1970s onwards, capitalism returns to its inherently unjust and highly unequal initial state. In such an unfair society most wealth by far is passed on through inheritance, in families that Piketty calls the superrich. It is almost impossible to rise from below through hard work and clever business strategy any more. Already after his first book, Piketty was criticised for being strong on empirics but weak on theory, and especially for not positioning himself clearly in relation to Marx, while using the term CAPITAL in the title, clearly a reference back to DAS KAPITAL. In the concluding chapter of his later, 2019 book, CAPITAL AND IDEOLOGY, Piketty explicitly quotes the famous sentence from the Communist Manifesto: “The history of all hitherto existing society is the history of class struggles”. He says he is tempted to reformulate this as “The history of all hitherto existing societies is the history of the struggle of ideologies and the quest for justice”. The book is therefore an exploration of the various forms of society humanity has gone through, together with the ideologies that were used to justify them. In this sense it is clearly an expansion on Capital in the 21st Century. Piketty begins by analysing the various historical social formations, which he calls inequality regimes. He starts off from what he calls trifunctional society – feudalism in a more conventional terminology – where the ideological framework is that people are born into mostly hereditary functional groups: nobility, clergy and the third estate in Europe; Brahmins, warriors and untouchables in India, etc. This is clearly a very unequal social formation, but it does have its related ideological justification. Piketty makes an effort throughout the book to avoid an exclusively Western perspective. He investigates other cultures from around the globe. Ownership society This is then replaced by what Piketty calls a proprietarian or ownership society - capitalism in a more conventional terminology. He proves with data from all over the world that although this new regime claims to have liberated people, in fact income and wealth inequality is massive, while social mobility is low. As opposed to the preceding feudal age, in capitalism theoretically everyone can occupy any social position. But only in theory, Piketty demonstrates. In reality social status in unmitigated capitalism is pretty fixed. Piketty’s favourite example is Paris, where the wealthiest 1% owned nearly 50% of all property in 1800-1810, and more than 65% on the eve of Word War I. The bottom 50% owned nothing. France was in fact more unequal on the eve of WW1 than it had been at the time of the French revolution! The massive social inequality of the early capitalist period is something that he had already demonstrated in meticulous empirical detail in his previous book. Slave holding societies Slavery was an extreme form of social inequality, which was also justified by an ideology. Piketty reviews this ideology, and how slave holding by Europeans especially in the United States, the Caribbean, Brazil or South Africa was not simply a case of racism, but also a central element of the local variant of capitalism. The United States grew rich based on the exploitation of black slave labour on land stolen from the Indians. The founding documents of the supposedly greatest democracy on earth were written by politicians who were mostly slave owners themselves. The well-known words “all men are created equal…” did not pertain to blacks… Of the fifteen presidents prior to the election of Abraham Lincoln in 1860, no fewer than eleven were slave owners themselves. Piketty cites a wealth of very illuminative data about the role of slaves in the economic development of these regions. He also discusses how when slavery was finally abolished, during the course of the 19th century, it was the slave owners who were compensated rather than the slaves themselves. When France finally agreed to give up slave holding on the island of Haiti in 1826, the formerly exploited slave society was obliged to pay compensation to France, its former enslaver and coloniser. These payments impeded Haitian development and were only finally concluded as late as 1947! Up until today, the economic elites of the United States, Brazil and South Africa are dominantly white, and although so much time has passed, blacks are still found to be in an economically extremely disadvantaged social status. Social democracy The enormous inequality and lack of social mobility of early capitalism was only overcome in the post WW2 era, when generous social redistribution enabled a high degree of social mobility. As we have already mentioned this had been the theme of his 2013 bestseller, Capital in the 21st Century, as well. A central feature of this regime of fairness was a very high rate of top income tax by today’s standards. In the period 1932-1980, the top marginal income rate averaged 81% in the United States and 89 percent in the United Kingdom, compared with “only” 58% in Germany and 60% in France. Piketty spends a lot of time discussing Sweden, the most developed social democratic society. He stresses how misguided it is that people often imagine that each culture or civilisation has some “essence” that makes it naturally egalitarian or inegalitarian. Sweden and its social democrats are supposed to have been egalitarians from time immemorial, as if equality was somehow a Viking passion. By contrast, India with its caste system is supposed to have been eternally inegalitarian. In fact everything depends on the rules and institutions that each human society establishes, and things can change very quickly depending on the balance of political and ideological power among contending social groups, as well as on the logic of events and on unstable historical trajectories. The Swedish case is the perfect antidote to the conservative identitarian arguments that crop up all too often in debates about equality and inequality. Prior to its robust social democratic period, Sweden had been one of the most unequal societies on earth, where people voted according to their wealth. A large segment of society had no wealth, and therefore no say in the running of public affairs whatsoever; while in large parts of the country a single rich landowner decided everything with a single vote. It was from this vastly unequal situation that Swedish social democracy was built. Piketty also refers to the by now rich literature on how caste in India was effectively reinforced by the British, who tried to understand and control the Raj through this statistical categorisation. Prior to the British, caste and even religious affiliation was a much more fluid concept. According to Piketty, Social Democratic welfare states proved to be unsustainable because they were fashioned and maintained at the national level. Social democratic parties were never willing and able to establish the international institutions that would have been necessary to withstand the challenge of globalisation, which came about in the form of the free flow of capital, offshore finance, labour migration, international trade and so on. All these phenomena put pressure on nation states to lower their taxes, wages and welfare standards. Had an international regime been created, this race to the bottom could have been avoided according to Piketty. Instead, the political right came into power everywhere, based on identitarian social nativism. Piketty also discusses the communist regimes of the twentieth century, and concludes that not only did they not live up to their own ideologies of social emancipation, but also left a lasting negative legacy in that they squashed hopes of Left being able to overcome capitalism. Hypercapitalism or neoliberalism In the West the social democratic welfare state era was followed by neoliberalism, which, as we have mentioned, reinstitutes the earlier unbearable inequalities. Top income tax rates are reduced to the average rate, corporate taxation is heavily diminished, and offshore tax evasion comes into play. As a consequence, states run into debt and claim to be unable to finance expenditure on education, health and other redistributive systems that would enable social mobility. Oligarchs become so rich that they are able to dominate democracy, which is definitely against the will of the one-time founding fathers. Certain disputes are now subject to private arbitration, which allows the wealthy to avoid judgment by the public court system. Rich donors receive diplomatic appointments in the United States. Access to higher education is also influenced by wealth: many American and international universities give special consideration to the children of wealthy donors, yet tellingly these policies are rarely discussed in public. One of Piketty’s most striking graphs shows that the relationship between social status and the likehood of attending university is effectively linear in the US! The richer your parents are, the more likely you are to go to university, which of course reinforces total social reproduction and the lack of social mobility. In the East, a similar process unfolded. Because transition to post-communist capitalism took place in an era of global neoliberalism, it is not the western social democratic welfare state model that replaced Russian or Chinese communism, but in both cases a form of capitalism where income and wealth inequalities are massive, way above European levels and on par with American ones. Except that in the United States this was a long time in the making, while in China it came about in a few decades, from very low levels of starting inequality, while in Russia it was established in a single decade, the nineties of Boris Yeltsin, shock therapy, coupon based privatisation and oligarchs. (Listen to episode two of the Political Economy Podcast for more on this period.) Piketty also has some proposals for a just society, although he states several times that he does not claim to have a monopoly on defining a just society, and is happy to debate. His aim is to supersede capitalism and private property with what he calls social and temporary ownership. This includes powersharing between workers and shareholders, and a cap on the votes any shareholder can cast. At the centre of his vision is a steeply progressive tax on wealth, a universal capital endowment such as a basic income, and permanent circulation of wealth. In addition, there is a progressive income tax, and a levy on carbon emissions, the proceeds of which go to pay for social insurance and a basic income, the ecological transition, and true educational equality. All in all, Piketty’s position is a reiteration of post WW2 social democracy, albeit in an expanded form. It mostly concurs with John Rawls’ Theory of Justice, whom many people believe to be a liberal. In the American usage, because of the two party system, the term “liberal” encompasses social democrats, liberals, greens, etc. In the multi party systems of Europe, Rawls would clearly be labelled a social democrat. His main message in a nutshell is that a society is fair if we allow everyone to fulfil their ambitions regardless of the situation they are born into financially, in terms of race, gender, etc. In order to create such a society, we need social redistribution from the rich towards the poor, and investment into socialised systems of health, education, housing, etc. Piketty agrees with this, as did the Social Democrats, whose welfare state model was based on this idea. However, a cardinal point on which Piketty stays silent is why the welfare state model was allowed to deteriorate in the first place. He describes in great empirical detail how the progressivitiy of the tax system was deteriorated over time, how left wing parties in France, the UK, Germany, the US and effectively the world over have evolved from representing workers and the poor, to becoming parties of the educated urban elites, people that Piketty calls the Brahmin Left. Many of the very poorest have simply been abandoned by parties: hence they do not vote. Politics is thus nowadays contested between what he calls the Merchant Right and the Brahmin Left. Questions of redistribution are pushed to the back burner, and are supressed by issues of recognition, as the American feminist theorist Nancy Fraser underscored. To put it in more simple and conventional terms than Piketty’s, 21st century politics is dominated by the rightist and liberal halves of the same elite. This is all well and clear, but the obvious question that Piketty fails to answer is this: once Liberal elites have moved away from redistribution, why would they accept his proposals, which are based on the very same principles of progressive taxation and redistribution? It is unlikely that Piketty believes that it was a lack of analysis and good ideas that steered the Brahmin Left off this course. If vested interests are at stake, why does he believe that his advice will be headed? It is here that general lack of theory in the book is exposed. Piketty is very strong on empirical detail and historical narrative, but weak on social theory. He talks about transcending capitalism and private property, but never really elaborates on it. We have already mentioned how he does not clarify how he relates to Marx, but in more general terms, he also does not relate himself to a massive literature in political economy about class and the state. The work of Italian political scientist Antonio Gramsci comes to mind immediately. Whenever Piketty does make some slight reference to Marxian literature, he seems to misunderstand it. One is left wondering whether he avoids this school of thought because it would leave him marginalised in academia, or because he truly does not know it. Although Piketty talks a lot about taxes, he also does not address the entire issue of Modern Monetary Theory, a school of economic thought that believes that the state does not need taxes to finance its expenditure. It can always print money to do so. Taxes are not without a function according to this school either. They make money circulate, curtail inflation, and guarantee the kind of social justice that Piketty wishes to see. However, they are not a prerequisite for state expenditure. For more, listen to the very first episode of the Political Economy Podcast, on Stephanie Kelton’s book The Deficit Myth. Piketty clearly believes that taxes are needed to finance state expenditure. This is fine, as long as he tells us why he believes MMT is wrong. But he completely ignores this school. He also talks about returning to the higher growth rates of the Social Democratic era without reflecting on the necessity for degrowth. One of his very valid points is that not only was the social democratic welfare state era more equal and just, it also achieved higher sustained growth and without debt. The successive neoliberal era, contrary to its claim of unleashing the potential of the market, has resulted not only in more inequality, but also in significantly slower economic growth, and even that was based on a massive accumulation of debt, both state and private. This is all fine and well, but does it mean we can go back to higher growth rates, as Piketty seems to want to? Most likely we cannot. We do know that with GDP growth there is a corresponding growth in CO2 emissions. And we also know that we cannot afford to have increasing CO2 emission if we are to avoid the on-going climate catastrophe. Thus in 2019 Piketty should have addressed the idea of degrowth, and not simply advocated a return to a higher growth rate. ---- All in all, Piketty demolishes the belief that extreme inequality is unavoidable. It is a choice we have made, and can be rolled back if we so wish. “The market and competition, profits and wages, capital and debt, skilled and unskilled workers, natives and aliens, tax havens and competitiveness—none of these things exist as such,” Piketty insists, drawing heavily on the Hungarian-British economic historian Karl Polányi. “All are social and historical constructs” that “depend entirely” on the “systems that people choose to adopt and the conceptual definitions they choose to work with.” Finally, be warned: Piketty does not do short. Capital in the 21st Century was 816 pages. Analysis of Kindle readers shows that the typical reader gave up after page 27. But Piketty was unmoved. Capital and Ideology, his latest book, is 1104 pages long.
1 Comment
4/4/2023 12:27:20 pm
When you start a new business, there’s a lot you don’t know. But worse than that, there’s often a lot you’re scared to ask – because you feel silly and think you should already know the answers. So we’re taking a look at which questions new businesses ask ANNA the most.
Reply
Leave a Reply. |
SzerzőPogátsa Zoltán, a Soproni Egyetem Lámfalussy Sándor Közgazdaságtudományi Kar Közgazdaságtan Intézetének igazgatója, az Új Egyenlőség társadalomelméleti magazin főszerkesztője Archives
August 2020
Categories |