Ian McAuley circulated the summary below and I asked him for permission to make it available here – which he agreed to. Piketty’s books remind me of one of John Clarke’s lines. Back in Fred Dagg’s ten minute History of Western Civilisation, he commented that “The Russians experimented with the thickness of the novel, and found that it could become very thick indeed”.
Ian’s summary is over the fold.
Thomas Piketty’s Capital and ideology is a sequel to his 2014 work Capital in the twenty-first century. In that earlier work he showed how since around 1980 inequality in wealth in “developed” countries has grown and has become more entrenched. Inequality in wealth is more enduring than inequality in income and has its own positive feedback mechanism leading it to worsen. As he pointed out in 750 pages, when the return on capital exceeds the rate of economic growth, inequality will go on rising. In that work he somewhat unrealistically put forward the idea of multilateral agreement on wealth taxes – “a global tax on capital”.
Capital and ideology expands on that work, reaching back to pre-capitalist times to find the roots of the present economic order, an order which he says sacralises private property. That dig into history is interesting: he refers to three classes – a warrior/ruling class, a priestly/philosopher class, and the masses (including slaves) – but it is not central to his work. That old three-part order, the ancien régime, was swept away by the French Revolution, which, for all its claims about égalité, actually perpetuated the sacralisation of property, with the result that by 1914 inequality in wealth in France (and in other countries) was even worse than it had been in 1789.
It’s common knowledge that from 1914 to the present day, in “developed” countries, the distribution of wealth and income became more equal up to around 1980 when, with the emergence of neoliberalism and the philosophy of “small government” (embraced most enthusiastically by Thatcher and Reagan, and even by social-democratic governments) the distribution started to turn, with the result that inequality is now once again approaching the levels experienced in 1914.
As in his earlier work he emphasises inequality in wealth rather than inequality in income – a useful emphasis because political debates are still dominated by arguments and evidence about income distribution, in part, perhaps, because official data on income is far more comprehensive than it is on wealth. Throughout his work he stresses the need for better and more open data: he does not resort to a conspiracy theory, but he does point out that the opacity of data on wealth holdings, at both national and international levels, serves the interests of the wealthy classes very well.
His discussion on the sacralisation of property starts with real-estate, which is where wealth was concentrated in pre-capitalist times (particularly in England where there were vast estates in the hands of the aristocracy), but he moves on to include financial capital, and he touches on human capital: the well-off have accumulated the human capital of education to themselves, but he doesn’t go so far as modern Marxists in this inclusion. Disparities in education he treats separately, as one of the core parts of his work. Even in countries with state-funded secular education systems it’s the children of the wealthy who get the breaks: a fortiori the situation is worse in countries with mixed public-private systems.
The central question he addresses is why, if it was possible to achieve progress in the distribution of income and wealth in the interbellum years of 1918-1939, particularly in initiatives such as Roosevelt’s New Deal, is it so hard now?
In part, of course, the wars of 1914-1945 had their own redistributive dynamics – a point he stresses in his earlier work. But there was also conscious political effort to address inequality in that period, particularly through the use of progressive income and wealth taxes (the latter mainly through inheritance taxes).
By now, however, we seem to be reluctant, or unable, to re-introduce such mechanisms. Wealth is sacred, as are private markets. His description of the sacralisation of property is very similar to Karl Polanyi’s description of the sacralisation of markets: in fact for most of his work the words “property” and “markets” could be interchanged without loss of meaning.
He ascribes this reluctance or inability to three possible reasons.
One is the race to the bottom in tax competition between jurisdictions – the prisoners’ dilemma of fiscal competition in a world order where capital moves freely. He produces evidence that the risk of capital flight tends to be overstated however: independent states, provided they are large enough, can tax their most wealthy citizens, particularly if they can share information across borders. In his earlier work he advocated a global wealth tax, but in this work he more modestly advocates a series of treaties between like countries. (In the process he is most critical of the EU in the way its governance structures make it hard to achieve fiscal integration).
Another possible reason is the collapse of soviet communism – a collapse that was preceded by exposure of its brutality and its failure to lift living standards. This has given socialism a bad name, and it has been convenient for ideologues, such as Hayek and his followers of recent times, to posit a binary choice between economic systems – free markets or communism. Those same ideologues of the right warn of a “slippery slope” of the mixed economy: where does it stop they ask, as if public ownership of an electricity utility is the first step towards a Stalinist purge of dairy farmers. Piketty provides some insights into the economic failure of soviet communism, particularly in its “all or nothing” approach to private property which contributed to the system’s brutality and made it impossible to manage.
The third reason relates to the policies of social-democratic parties, which have become detached from their working-class origins. That’s no great revelation, but his analysis provides some insights about how this detachment occurred. He suggests that parties of the left, in the early twentieth century, were almost singularly focussed on public ownership of the means of production as an end in itself, while taking their eyes off the principles of economic justice.
In this emphasis I believe he shows a European bias: the left in France and the UK did aim to capture the commanding heights of the economy, but in Australia the Labor Party tended to see nationalisation, even nationalisation of the banks, in terms of correcting for market failure: Labor’s approach has been closer to that of Germany’s Ordoliberalismus than to Marx’s Das Kapital. He also suggests that high tax rates and public investments initiated by parties on the left were often seen as pragmatic means to solve specific problems, such as the overhang of public debt following two wars, rather than as aspects of any broader economic vision. Here again Australia may have been on a more solid path, because the Labor Party, up to the time of the Hawke Government, did have a coherent platform in its 1945 White Paper on Full Employment, which sets out the same principles as those promoted by advocates of a universal basic income (including Piketty himself), but to be achieved through a universal social wage with an emphasis on services rather than cash transfers. Piketty’s failure to consider Australia among his core examples is unfortunate, because our economic history has had some unique features, as described by another French economic historian Albert Métin, who in 1901 published his observations on Australia in his work Sociaslisme sans doctrine – a title that summarises Australia’s pragmatic path to social democracy. Métin does not appear in his extensive biography.
A more basic omission in Picketty’s explanations for egalitarian policies between 1914 and 1980 is the role of unions, not only in influencing social-democrat parties, but also in providing a countervailing power against capitalism’s excesses. He gives only passing reference to unions in either context, and therefore doesn’t cover the way structural changes that saw the disappearance of large workplaces weakened the influence of unions.
He is on firmer ground in his observation of voting patterns – perhaps the most important part of his work – where he finds among many countries that parties of the left have lost ground among the working-class but have gained ground among voters with high levels of education. Up to around fifty years ago, voters’ education and support for conservative parties were positively correlated – the well-educated and the prosperous consistently voted for conservative parties – but that relationship flipped around 1980, and the relationship between education, income and wealth and support for traditional “left” parties has been strengthening ever since. Education was the first to flip, followed by income, and wealth is on the verge of flipping in many countries. (His charts showing these changes in party support would have John Curtin turning in his grave). He refers to this process as “the Brahminisation of postwar social democracy” – with echoes of the ancien régime (and of contemporary India) where the priestly class enjoyed a privileged position in the hierarchy. The concerns of the Brahmin left do not align with those of the disadvantaged classes he points out:
The two groups differ regarding how public services are organized; how cities, suburbs, and rural areas are financed, what cultural activities are supported, and how the transportation infrastructure is designed and maintained.
He goes on to suggest that the Brahmin left is more comfortable with the merchant right, with whom they share an acceptance of globalisation and their own ideas of meritocracy:
The Brahmin left values scholastic success, intellectual work, and the acquisition of diplomas and knowledge; the merchant right emphasises professional motivation, a flair for business, and negotiating skills. Each group invokes an ideology of merit and just inequality, but the type of effort expended is not exactly the same – nor is the reward for that effort.
Piketty seems to be describing what the angry crowds who stormed Washington’s Capitol would classify as the “elites” – a classification that transcends traditional social class divisions. He is far from the first to point out that the old left/right divisions do not map easily on to contemporary society, but he does offer some credible explanations for contemporary political divisions, backed up with copious data. His own classification of interests are four ways, transcending traditional class lines but consistent with now-familiar identitarian classifications. He sees a polity:
fractured into four approximately equal parts: an ideological bloc that can be characterized as egalitarian internationalist, another that can be described as inegalitarian internationalist, a third that can be called inegalitarian nativist, and finally, an egalitarian nativist bloc.
I, and undoubtedly others, disagree on many of his conclusions and classifications, but he offers enough by way of example and data for people to draw their own conclusions.
He mounts a strong case for a return to progressive taxation, not only to achieve some progress towards a fairer distribution of income, but also to finance necessary public expenditure, particularly education accessible to all. (Had he written a year later he would probably have provided a similarly strong argument for health care, which he mentions only in passing). He reminds us, for example, that the top marginal income tax rate in the USA between 1932 and 1980 was 81 per cent, while in the UK it was even higher. His arguments for progressive taxes on wealth also rest on the need to keep capital in circulation. This is what he calls “temporary ownership” of private property, effected through taxes (rather than confiscation as the term might suggest).
And although it shouldn’t need repeating, he stresses, with ample evidence, that well-funded public services do not impose a cost on economic performance – a point Miriam Lyons and I stressed in Governomics: can we afford small government? in the Australian context. He shows how cuts in education expenditure have impeded countries’ long-term economic performance (particularly in the UK), and is deeply critical of the way the Washington Consensus has imposed austerity on “developing” countries – one of his more important points.
Because of trade liberalisation those countries have lost customs duties as a source of public revenue, but they do not have the infrastructure to levy income or wealth taxes – a situation exacerbated by the rich in those countries shifting their money offshore. As a result these countries lack the capacity to fund education and health care to anywhere near what is needed to bring their people up to their full potential and protect against the entrenchment of a permanent underclass. (In this regard he devotes a fair bit of coverage to India’s affirmative education programs for members of lower castes).
An important aspect of his work is his rejection of any idea that inequality is an immutable aspect of humanity. He stresses that all societies, including the most unequal, have explanations, usually rationalisations covering the most privileged, for their levels of inequality, such as the idea of “trickle down” economics, or racial superiority (an idea that endures long after the formal abolition of slavery). But these explanations are not deeply embedded. Societies change and develop: in this regard his most stark example is Sweden, which until early in the twentieth century was among the most inegalitarian countries in Europe – something that would surprise most observers of modern Sweden. An example in the other direction is Russia’s rapid transformation from communism (which, for all its faults, had achieved substantial economic equality) to one of the world’s most unequal societies after 1989. He stresses that:
… 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.
He acknowledges that it is not desirable or practical to eliminate inequality – he is no leveller – but he acknowledges that there is no easy way to assert some optimal level of inequality. In that regard he could have left off his penultimate chapter where he gets down to detailed design of idealized progressive tax systems, making it too easy for nitpickers to fault his work.
Better to stick to principles as he does in his conclusion:
… the struggle of ideologies and the quest for justice … entails the expression of clearly defined positions and clearly designated antagonists. Based on the experiences analyzed in this book, I am convinced that capitalism and private property can be superseded and that a just society can be established on the basis of participatory socialism and social federalism. The first step is to establish a regime of social and temporary ownership. This will require power sharing between workers and shareholders and a ceiling on the number of votes that can be cast by any one shareholder. It will also require a steeply progressive tax on property, a universal capital endowment, and permanent circulation of wealth. In addition, it implies a progressive income tax and collective regulation of carbon emissions, the proceeds from which will go to pay for social insurance and a basic income, the ecological transition, and true educational equality. Finally, the global economy will need to be reorganized by means of co-development treaties incorporating quantified objectives of social, fiscal, and environmental justice; liberalization of trade and financial flows must be conditioned on progress toward meeting those primary goals. This redefinition of the global legal framework will require abandonment of some existing treaties, most notably those concerning the free circulation of capital that came into effect in the 1980s–1990s because these stand in the way of meeting the above-mentioned goals. Those treaties will need to be replaced by new rules based on the principles of financial transparency, fiscal cooperation, and transnational democracy.
Capital and ideology is not an easy read. One encounters its gems (such as his explanation why it was just as well for the French that Germany did not abide by the Treaty of Versailles, or how the King of England, theoretically a detached monarch, cooperated with Prime Minister Lloyd George to weaken the aristocracy’s political power) buried within many pages of statistical data. At what would come to around 1100 pages in a paper edition it is far too long. There is a great deal of repetition, presumably in an attempt to make each chapter stand alone, but there are also long tracts of textual presentation of data that is already well-displayed in his graphs. Judging by the number of typographical errors, its publication may have been done in some haste without the usual reader-friendly refinements. And perhaps it has suffered somewhat in translation from French to English. A service to the world of ideas would be a 200 page condensation.
Thomas Piketty, Capital and Ideology, Harvard University Press 2020