Book review: Capital in the Twenty-First Century by Thomas Piketty
Thomas Piketty, a 43 year old, left leaning, French socialist economist, has written a 700 page book on inequality which has achieved something few would have thought possible. He has rocked the neo-liberal economic establishment to its foundations. To read the tidal wave of reviews by economics professors and others across the world is to get a sense of the impact that Piketty’s conclusions are having: that inequality is even more extreme than most experts thought, is worse than at any time since the 19th century and is set to reach nightmare proportions in the years ahead.
Even some of the most ideologically blinkered of free market economists, having read this book, now openly admit that the Professor Piketty has laid down a challenge which they dare not ignore and which could change the political environment. Many say he has “re-written the economic text books for this century.”
The experts are impressed less by his conclusions than the mountain of evidence he marshals in support of them. This book has been written with the active collaboration of many experts working on data - which has never been properly collated or analysed before - about how wealth and income differences have evolved over the centuries. Only with the latest data processing systems has this been made possible.
Examining the history of income and wealth inequality, Piketty recounts the extreme inequalities which marked the centuries before the First World War. In a fascinating section which follows, he links the reduction of inequalities between 1914 and 1945 in large measure to the sheer destruction by war of so much (mainly inherited) wealth.
But he also underlines that in post-war Europe, between 1945 and the mid 1970s, an unprecedented combination of higher taxes, social reform and strong trade unionism resulted in a gradual narrowing of inequality. But his documentation of trends since the 1970s is bleak in the extreme.
In describing the accelerating concentration of wealth in the hands of the infamous “1 per cent”, Piketty demonstrates the interaction between outlandishly extreme salaries paid to top business executives and the way in which this boosts not merely income but feeds directly into wealth inequality. In the US not only do the richest 10 per cent own 75 per cent of the country’s wealth but between 2010 and 2012 an almost unbelievable 95 per cent of the overall growth of income went to just one per cent of the population.
At the heart of his detailed analysis Piketty insists that “the central contradiction of capitalism” is the tendency for inequality to grow when the rate of return on capital (by which he means something broader than the conventional Marxist definition of the rate of profit) is higher than the economy’s rate of growth. He also notes that as developing countries industrialise, inequalities get worse, not better. In the developed capitalist world he warns that the prospect of slower economic growth in the years ahead combined with the political domination of the interests of the super rich in our political systems threatens to make these extreme inequalities even more grotesque.
Given this analysis, and Piketty’s title for the book “Capital in the 21st Century” it might be thought that he is fairly obviously a Marxist. But although he was brought up in a family of Marxists (his parent were militants in the French Trotskyist Lutte Ouvriere organisation) this is not really the case. While acknowledging his debt to Marx’s pioneering work, he highlights distributional issues and insists there are potential reforms which can and should be taken even within the existing capitalist system.
In essence this comes down to the blunt conclusion that there should be a coordinated, world wide annual tax on all forms of wealth (not just property). He suggests this might start at one per cent on wealth between $1 million and $5 million rising to 10 per cent or possibly more on fortunes above $1 billion. Piketty of course understands the enormity of this challenge but argues that “Although this risk is real, I do not see any genuine alternative: if we are to regain control of capitalism, we must bet everything on democracy – and in Europe, democracy on a European scale.”
This, of course, is where the political dialogue on the left should begin. Piketty admits such an approach is a very long shot. So could such a strategy have to await some prior existing “socialist order” or might the struggle to redress the Kafkaesque world of income and wealth inequality trigger a revival of international movements directed at achieving a new economic and social system?
At the very least this “extraordinarily important book” (as the Financial Times described it) provides the left with the arguments and the evidence for action which not even the most blinkered of defenders of the present neo-liberal order can challenge. We should take advantage of the obvious intellectual disarray which Piketty has inflicted on our enemies. This book should be in everyone’s local library.
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