Picking at Piketty

By | May 6, 2014

Like many others I purchased a copy of Piketty’s Capital in the Twenty-first Century early on. One of Heffers sales people mentioned in passing that a Yale rep had told him it was the most significant book they have published in a generation. That was enough for me.

But it is a big fat book and I have put off starting it. It was in my bag when I visited my daughter in Cambridge and I have now got stuck in. I have also thumbed through it and read a review or two, courtesy of my mates on twitter (Paul Mason’s review/comment in the Guardian is especially helpful). The object of this brief blog, ‘Picking at Piketty’, is to offer a quick summary of his thesis and to raise an issue or two. When I have studied it in the detail it deserves I may well have to retract, add to or rethink these provisional remarks.

Piketty is not a Marxist, for all the vitriol that his text has occasioned in certain right-wing quarters. Having documented and analyzed late capitalism’s self-imploding properties, what he delivers is a ‘utopian’ set of reforms to draw its sting.

In a nutshell, Piketty contends that in an economy where the return on capital outstrips the rate of growth (as is the case in post-1970s ‘financial capitalism’), inherited wealth will necessarily grow faster than earned wealth. The rapidly expanding levels of inequality seen over the last generation are not an aberration: they reveal a system working normally.

Strong returns on capital combined with slow growth means that inherited wealth will, ceteris paribus, ‘dominate wealth amassed from a lifetime’s labour by a wide margin’. In Piketty’s words:

‘ … the return of high capital/income ratios over the past few decades can be explained in large part by the return to a regime of relatively slow growth. In slowly growing economies, past wealth naturally takes on disproportionate importance, because it takes only a small flow of new savings to increase the stock of wealth steadily and substantially.’

Piketty ‘writes’ today’s fundamental inequality:

‘ … as r > g (where r stands for the average annual rate of return on capital, including profits, dividends, interest, rents, and other income from capital, expressed as a percentage of its total value, and g stands for the rate of growth of the economy, that is, the annual increase in income and output).’

Moreover wealth will become more and more concentrated, Piketty maintains, until it is incompatible with democracy, let alone justice.

This may seems commonsensical, but Piketty is in dialogue with fellow economists here. His argument runs counter to the received wisdom of Kuznets. Kuznets purported to show – empirically – that while societies become more unequal in the early stages of industrialization, this reduces as they ‘mature’. The so-called ‘Kuznets curve’ retained much of its currency prior to Piketty’s intervention. What Piketty demonstrates, drawing on data unavailable to Kuznets. is that capitalism started out unequal, flattened inequality for much of the 20th century, but has now headed back towards what Mason describes as ‘Dickensian’ levels of inequality worldwide.

Piketty acknowledges that some of the products of ‘economic maturity’ – skills, training and education of the workforce in particular – promote equality, but finds that these are more than offset by more basic and powerful tendencies towards inequality (e.g. lower taxation and weak labour organization). Mason: ‘many of the book’s 700 pages are spent marshalling evidence that 21st century capitalism is on a one-way journey towards inequality – unless we do something.’

What should we do? Piketty confronts the political implications logically. He advocates a ‘confiscatory’ global tax on inherited wealth. He commends an 80% tax on incomes above $500,000 per annum in the USA, assuring readers that there would neither be a flight of CEOs from the USA to Canada, nor a slowdown in growth, since the outcome would rather be to suppress such incomes. He also favours enforced transparency for all bank transactions and the overt use of inflation to redistribute wealth downwards.

Mason asks – rhetorically – if Piketty is the new Marx. The answer is clearly no, as Piketty himself would admit. And Mason puts his finger on what is for me the key point: Marx was concerned with social relations (principally that between wage-labourers and owners of capital), while Piketty ‘sees only social categories’:

‘Marxist economics lives in a world where the inner tendencies of capitalism are belied by its surface experience. Piketty’s world is of concrete historical data only’ .

Piketty is an important critic of the orthodox economics of post-1970s neo-liberal capitalism. That he is not more, and does not claim to be, is reflected in his confession that the policy changes he advocates are utopian (Mason: ‘it is easier to imagine capitalism collapsing than the elite consenting to them’). And there’s the rub.

I have skimmed much of Capital in the Twenty-first Century and will persevere with a thorough reading. It is an extremely eloquent corrective to the pallid, expedient and pseudo-scientific analyses of many contemporary economists (which are beginning to attract criticism, not least from students). Piketty is surely right to insist that the willful separation of economics from the other social sciences was a grave mistake.

I would add two further comments, both of which feature on other of my blogs. The first returns to Marx’s focus on social relations. It seems apparent to me: (a) that Pikkety is aware of but sidesteps the limitations of working with social categories rather than social relations; and (b) that this does indeed commit him to a utopian programme of ‘reforming capitalism’. I would argue that acknowledging the logic of capitalism and the causal pre-eminence of its (contradictory) social relations remains a precondition both for explaining the emergence of financial capitalism and its sequelae and for addressing the physical and symbolic violence now being shown to its ‘new’ wage-labourers.

My second comment is related. I have elsewhere suggested that in the present political climate the optimum strategy of resistance to the growing levels of wealth and income inequality in financial capitalism – that Piketty captures with impressive empirical precision – might be one of ‘permanent reform’. This promotes the idea that a cumulative series of popular and irresistible reforms might just occasion a crisis of legitimation that leads people to challenge the very concept of capitalism. The concept of permanent reform importantly leaves the way open for a democratically negotiated future; it neither issues from nor bears the imprint of a blueprint. Maybe Piketty’s analysis has a role here?




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