Till the lockdown triggered by the coronavirus, the financial crisis of 2008 was considered to be the biggest setback the financial world had seen since the 1929 Wall Street Crash. Then as well as now, one dominant issue has been how crises affect the rich and the poor differently. The images of migrant workers walking miles to reach home or families struggling to maintain social distancing in crowded shanties of India or news of black and Hispanic patients in the U.S. being more vulnerable to COVID-19 are all a grim reminder that even if the virus goes away at one stage, inequality is likely to remain an intractable issue.
One consequence of the 2008 crisis was the call to seriously introspect issues surrounding inequality, not just by academics, but also by the corporate world and society at large. Billionaire Warren Buffet in 2011 reportedly said it was time to impose high taxes on the rich and Pope Francis in 2013 lamented the wide gap between the majority and a happy few who enjoyed the prosperity in society.
However, economists did not see inequality as a problem of social justice. For rating agency S&P and the OECD (Organization for Economic Cooperation and Development), inequality needs to be addressed more to ensure unimpeded economic growth.
Main thesis
It is in this backdrop that French economist Thomas Piketty came out with his Capital in the Twenty-First Century . It is the crisis of 2008 that made him take a serious interest in the crisis of global capitalism.
The main thesis of his book is when the return on capital is greater than economic growth, in the long run there will be concentration of wealth and its unequal distribution will create instability. When the rate of growth is low, wealth from capital tends to accumulate quickly than from labour. And it adds to the wealth of the top 10% of the population. To set this right State intervention is inevitable.
Piketty claims to have worked out this thesis in relation to Western Europe, the U.S. and Japan.
In his latest work Capital and Ideology , he extends the thesis to post-communist societies like Russia and China and developing countries like India and Brazil. He also looks at inequality in slave and colonial societies, post-colonial societies and countries like Iran.
Basically, the recent work traces the evolution of inequality regimes, from the ternary society to the ownership society, and then to the hypercapitalist society. In charting their trajectories, he brings to critical light the ideological discourses that seek to justify property regimes. He attempts to expose their links with the legal, fiscal and, broadly, political regimes that abet the prevailing social order.
If inequality is not embedded in nature, but historically constructed, as Piketty believes, it is necessary to get to the ideological roots of property regimes.
Wide gap in income, wealth
In diagnosing the structure and function of the regimes, he draws the conclusion that if ideologies of the past are no wiser than the ones they succeeded, today’s ideologies are no better.
Using extensive data mined from national accounts, tax records and house surveys over the years, available on the World Inequality Database, which the author built in collaboration with scholars from eighty countries, Piketty highlights the gap in income and wealth between the top centile or decile and the rest of society in different countries and times.
While the income gap was quite high in trifunctional societies, it wasn’t any less in post-revolutionary France or in the industrial era of England. And it reached a peak before World War I.
Piketty argues that the hope of social and political stability and individual emancipation through property rights, which the French Revolution raised, only gave rise to an extremely inegalitarian society, evident in ‘Belle Epoque’ or the Beautiful Age (between 1871 and 1914), thanks to the propertarian ideology. In France, the share of the wealthiest 10% of all private property was in the range of 80-90% between 1780 and 1910, in the U.K. it was roughly 85-92% and in Sweden, 84-88%.
It is only after World War II that the disparities in income come down in Europe and the U.S. He defines the class that gained from this development as the ‘patrimonial middle class’, the middle 40% of the wealthy hierarchy.
Gaps in income reduced largely due to the World Wars, the consequent economic crisis and measures such as nationalisation of many businesses and progressive taxation of income and inherited wealth.
Between 1940 and the end of the 1970s, the top tax rate in Britain was always above 90% and in the U.S. between 70% and 95%. Things changed with the 1973 economic crisis. Countries reverted to lower taxation and the income and wealth gaps began to grow wide again.
A skewed world
What is worrying the author is that regions that saw relative equality between 1950 and 1980 have moved towards an inegalitarian frontier. The top decile’s share of national income in all countries increased from 27-34% in 1980 to 34-56% in 2018. As for wealth it was even more skewed. After 1980, the richest 10% in the U.S. owned 70% of wealth, with 1% holding 50%. The next 40% owned one quarter of the wealth and the remaining section only 5%. European societies were only slightly less unequal.
The point to be noted, according to the author, is that between 1950 and 1980, economic growth was higher than it was in 1990-2020 . This calls into question the common argument that tax reduction is necessary to spur growth.
What is more worrying, Piketty says, is that even after the 2008 financial crisis the gap in wealth kept growing. He counters several standard arguments that try to make inequality an inevitable fact of life or even a virtue.
For instance, he takes on the argument that while the wealth of Russian oligarchies or oil sheikhs is undeserving, as they contribute little to the economy, the fortunes of Silicon Valley innovators or digital era entrepreneurs, like Bill Gates or Mark Zuckerberg, are self-earned, and therefore deserve tax breaks.
Questioning the meritocratic argument, Piketty says that the digital era products were not whipped out by the entrepreneurs but required a whole lot of investment in basic research and legal and tax codes before they could be patented.
The constant refrain of the book is that there is a need to develop better norms of economic regulation and redistribution of wealth. Of particular concern is the unequal access to higher education in Europe and the U.S., which hampers social mobility of the lower classes. Piketty makes a strong case for high taxes on income, wealth and inheritance, which, he says, could be invested in welfare measures to address the glaring disparities in society.
India’s case
On India, the author says the country, after achieving much since independence by including the lower classes in the political and justice system through reservation, lost ground in not investing in the economic and educational development of its people. Piketty claims India’s not-so-advanced neighbours did better in the 1960s and 1970s. Also it failed to extend to the other regions the limited success it achieved in agrarian reforms in West Bengal and Kerala.
Post 1980, the divergence between the top 10% and bottom 50% in income has been greater in India than in China and Europe.
Though India took concrete affirmative action in setting right the inegalitarian system by opting for reservation, he feels it has allowed the caste system to solidify. Nevertheless, India, for him, offers lessons in addressing longstanding social and status inequalities.
Lessons from history
Piketty’s aim is to draw lessons from history for charting a path toward participatory socialism and social federalism for greater justice in employment, education and immigration.
Capital and Ideology as a project aimed at plotting inequality across continents and ages looks audacious in scope, even with the copious notes, tables and graphs and an elaborate bibliography it carries.
But the author in his conclusion says his work is tentative and aims only to initiate a debate and raise new questions. His larger message: history and economics are too important to be left to historians and economists.
Capital and Ideology ; Thomas Piketty, Harvard University Press/HarperCollins, ₹2,499.
