4 of 7 people found the following review helpful
Interesting facts, poor politics,
This review is from: Capital in the Twenty-First Century (Hardcover)
Thomas Piketty is Professor at the Paris School of Economics. This fascinating book studies changes in wealth distribution. The data are always interesting.
But his politics are conventionally social democratic. He dismisses all the experiences of Soviet planning in just five lines of ignorant abuse.
He presents his book as the alternative to Marx’s Capital, but shows no sign of having read it. He claims that Marx ‘relies on a strict assumption of zero productivity growth over the long run’ and that he “totally neglected the possibility of durable technological progress and steadily increasing productivity.” Parts 4, 5 and 7 of the first volume of Capital are all about productivity growth over the long run, and Marx wrote, “Another important factor in the accumulation of capital is the degree of productivity of social labour.”
Again, Piketty claims that Marx ‘implicitly assumes zero demographic … growth.’ Marx wrote a whole section on capital’s increasing demand for labour power, concluding, “Accumulation of capital is, therefore, increase of the proletariat.”
In Europe and the USA, between 1870 and 1900, wages rose, but the concentration of wealth, and inequality, continued to rise until 1914. He notes, “the concentration of wealth was as large at that time [the late 19th century] in France as in Britain, which clearly demonstrated that equality of rights in the marketplace cannot ensure equality of rights tout court.” As Piketty comments, “inequalities with respect to capital are always extreme.” In Britain in 1910, the richest one per cent owned 70 per cent of the wealth.
In the USA, the richest 10 per cent claimed 45-50 per cent of the nation’s income in 1910-30, 30-35 per cent 1950-70 and 45-50 per cent again since 2000.
He admits, “For those who own nothing but their labour power … it is difficult to accept that the owners of capital – some of whom have inherited at least part of their wealth – are able to appropriate so much of the wealth produced by their labour.” The capitalist societies of the USA, Europe and Japan are “societies in which inequality with respect to capital is so great that the owners of capital do not need to work.”
Piketty’s remedy for growing inequality is a global tax on capital, which he admits is ‘a utopian ideal’. It is indeed just wishful thinking when the rich make the laws. He asks, “Has the US political process been captured by the 1 percent?” The answer is Yes, as he shows.
But he decides to ignore the evidence he presents, writing, “For reasons of natural optimism as well as professional predilection, I am inclined to grant more influence to ideas and intellectual debate. Careful examination of various hypotheses and bodies of evidence, and access to better data, can influence political debate and perhaps push the process in a direction more favourable to the general interest.”
He asserts that this global tax on capital is “a solution that has the merit of preserving economic openness while effectively regulating the global economy and justly distributing the benefits among and within nations.” So now his tax is a solution, not just a utopian ideal.
He makes just a one-page argument against the working class alternative policy of protectionism and capital controls, yet admits, “As noted, the simplest way for a government to reclaim a measure of economic and financial sovereignty is to resort to protectionism and controls on capital. Protectionism is at times a useful way of sheltering relatively undeveloped sectors of a country’s economy (until domestic firms are ready to face international competition). ….
“Nevertheless, protectionism, when deployed on a large scale over a long period of time, is not in itself a source of prosperity or a creator of wealth.” But neither is economic openness. As he comments, “the rare estimates of the economic gains due to financial integration suggest a rather modest global gain (without even allowing for the negative effects on inequality and instability, which these studies ignore).” So economic openness, far from ‘justly distributing the benefits’, worsens inequality.
And, as he notes, “there has been a tendency to see the free circulation of people, goods, and capital as fundamental rights with priority over the right of member states to promote the general interest of their people …” A global tax on capital, even if possible, would do nothing to stop this.
Piketty also acknowledges, “it is quite likely that the rich countries will have increasing recourse to capital controls in the decades ahead. The emerging world has shown the way, starting in the aftermath of the Asian financial crisis of 1998, which convinced many countries, including Indonesia, Brazil, and Russia, that the policies and ‘shock therapies’ dictated by the international community were not always well advised and the time had come to set their own courses.” And he concludes, “capital controls are one way of regulating and containing the dynamics of wealth inequality.”
So in sum, his global tax can’t work, and protection and capital controls do work.