Racing towards inequality

Submitted by martin on 4 February, 2014 - 6:23

If you think that the economic crisis afflicts us like a curse from heaven, you should read Capital in the 21st century, the latest book by Thomas Piketty.


This is a longer version of the article than in the printed paper..

Not for the answers it offers, which are tame. Piketty, who is very close to the Socialist Party [French equivalent of the Labour Party], and was the economic adviser of Ségolène Royal [SP presidential candidate in 2007], limits himself to wanting to regulate capitalism by way of a world-wide progressive tax on capital. This is a "useful utopia", he says, a way to "surpass" capitalism, not to overthrow it.

But his book is worthwhile as an eloquent summary of present-day capitalism and its tendencies.

The book is accessible (if its 970 pages do not discourage you), even for those who know nothing of economics. Piketty, who denounes economists' "infantile passion" for mathematics, prefers to focus his work on historical research, and to cite Balzac rather than economic theories for the initiated.

Piketty describes "levels of inequality previously unknown", a capitalist world where the internal imbalances within the rich countries are clearly stronger than the international imbalances between rich and poor countries. The tendency is accelerating.

The pay of top managers has reached levels previously unknown. It is a society of super-managers rather than of superstars: sports people, actors, and artists represent less than 5% of the top 0.1% of incomes.

Inequalities are even greater if we look at the distribution of capital and its revenues. In France, "capital has changed character: it was landed property, it has become real-estate, industrial, and financial property". The capitalists have adapted.

In countries like France, the 50% poorest own less than 5% of assets. "For this half of the population, the very notion of assets and of capital is relatively abstract. For millions of people, their assets are reduced to a few weeks' worth of wages in a checking or savings account, a car, and some furniture".

At the other end of the scale, the richest 10% own 60% of assets, 70% in in the USA.

Piketty sees a tendency to return to a level of inequality similar to that of the 19th century or of the Belle Epoque [the period before World War 1], when the richest 10% owned 90% of assets.

This monopolisation of assets by the richest proceeds through the relative reduction of the assets of the middle class, since the poorest have practically no assets, and a downturn in middle-class revenues.

That middle class, which emerged through the crises of the 20th century and the boom after World War 2, was, for Piketty, "the major innovation of the 20th century". In Europe today, it represents about 40% of the adult population (so, 20 million people in France) and owns 35% of assets.

But its glory days are behind it. The big question is which way the middle class will turn if its economic situation worsens further: towards the working class and toward the overthrow of capitalism, or in reactionary and populist directions. Piketty, however, is far from counting on a social revolution.

The reduction of inequalities through economic growth is for Piketty an illusion linked to the specific economic period of the two world wars, the 30 years' boom after World War 2, the presence of the USSR - a period of massive destruction of capital and of direct state intervention in the economy.

He explains that the 21st century will see an average rate of growth of about 1% in the "mature" capitalist countries, and the emerging economies stabilising themselves around that rate of growth once their demography has stabilised and they have caught up economically.

In a period of weak economic growth, inheritance will be more important in the formation of private fortunes, and thus in the maintenance and increase of inequalities. As for the poorest 50%, they inherit nothing and have every chance of remaining poor.

The question of public debt is also, for Piketty, "a question of distribution of wealth". For "the world of the wealthy is rich; it is the states that are poor". "Europe is simultaneously the continent with the largest private fortunes in the world, and the one which has greatest difficulty in resolving its public debt crisis".

Besides tax loopholes, Piketty estimates that capital hidden away in tax havens amounts to 10% of world GDP. He deduces a need to save capitalism from itself before the rise of inequality leads to the growth of "populisms".

It can be done by a world-wide progressive tax on capital. Such taxes are the only "civilised remedy for the dull violence of inequality". If not, we will see a "degeneration into social revolts, protectionist withdrawals, or populist upsurges".

A "degeneration" into social revolts? We see what he's scared of.

Review article translated from the French Marxist journal Convergences Revolutionnaires. Le capital au xxie siècle, by Thomas Piketty, Éditions du Seuil, 2013

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