By the TUC’s Tim Page
I was privileged to be at the IPPR on Wednesday, to hear the French economist, Thomas Piketty, present on his book,Â âCapital in the Twenty First Centuryâ. As IPPR Director Nick Pearce told the audience, this book has been critically reviewed in all major newspapers. It has captured the imagination of the Centre Left and given intellectual ballast to attempts to forge a post crash, post neo-liberal economic model.
The book is marvellous: it is ambitious in its sweep, yet highly readable for a discussion of such a complex subject. At 577 pages (excluding notes), the book is long and the analysis that follows is necessarily based on a partial reading. âCapital in the Twenty First Centuryâ is being widely discussed and had I given it the time and attention it really deserves before putting pen to paper, Iâd have missed the moment. I hope, nevertheless, to give a sense of the book and a few thoughts in response.
âCapital in the Twenty First Centuryâ builds on the work of Marx and Kuznets. Piketty poses the dilemma thus:Â âDo the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century?â
Addressing this question, âCapital in the Twenty First Centuryâ provides a mass of evidence to show that modern capitalism, if left to its own devices, rewards âcapitalâ at a higher rate than income. It follows that under modern capitalism, the wealth of the âhavesâ will always rise faster not only than the âhave-notsâ, but also the âworking hard in order to havesâ.
This highlights something akin to a structural flaw in capitalism: we have been told that with hard work, talent and a bit of luck, capitalism affords increased wealth via the law of the market. The cream should, as it were, rise to the top. Pikettyâs analysis undermines this proposition.
Thomas Piketty also shows that the years following the Second World War (the âTrente Glorieusesâ in the authorâs native French), during which inequality fell, were a historical aberration, brought about by policy responses to war and the shocks of war.
These years found expression in the UK in both Harold MacMillanâs famous phrase to the working class, âYouâve never had it so goodâ, and in the Labour revisionist politician Anthony Croslandâs book, âThe Future of Socialismâ. Yet in the 1980s and 1990s, as Piketty shows, this trend reversed; or, if Piketty is right, capitalism reverted to type.
How big a problem is this? Piketty argues that we have avoided the âMarxist apocalypseâ, but we have not modified structures of capital an inequality sufficiently, adding:Â âWhen the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.â
This is a book of its time. I suspect that, had it been written 15 years ago, it would have gained much less attention. The reason is that 15 years ago, politicians, including those of the Centre Left, were not particularly preoccupied either with wealth or with equality.
They were concerned about poverty. Thereâs nothing wrong with that, of course, but the zeitgeist of the New Labour years, as the UKâs Centre Left sought to move beyond Thatcherism, was that so long as the poor got richer and moved out of poverty, inequality didnât matter.
Arguments that more equal societies are happier societies were decidedly old hat. But the intellectual wind has changed direction and the Centre Left is, once again, concerned at the absolute gap between rich and poor, partly as fairness once again becomes part of the debate.
Pickettyâs main policy response is that there should be a global tax on capital, a suggestion that he admits is utopian. This tax has to be global, in order to prevent the rich simply moving abroad to avoid it. Picketty accepts that, in the current climate, a capital tax is politically unacceptable, but as he told the IPPR event, fashions change.
He is right about that. In the 1940s, Keynes was all the rage. In the 1970s, Friedman and Hayek became the star economists. To some of us, it feels as if neo-liberalism has gone on forever, but it is less than 40 years old, having so far lived a little (but not much) longer than the Keynesian consensus. Thereâs no reason to believe that a new hegemonic model will not emerge, whether or not this addresses higher taxation for the richest.
Piketty is correct when describes taxation as âpre-eminently a political and philosophical issueâ, yet my one concern about âCapital in the Twenty First Centuryâ is that it puts all the onus on the state to regulate capitalism.
The state does, of course, have the primary role and perhaps it is too much to expect Piketty to explore other possibilities, yet I wonder if there is a role for other actors. I am thinking, perhaps inevitably, of trade unions, whose role does not feature in Pikettyâs analysis.
Piketty discusses the growth of so-called âsuper managersâ, who we might know better as top company executives. Such âsuper managersâ did not seek excessive pay in the years of high marginal taxation for the richest, because it would have simply been clawed back in tax.
But post Thatcher and Reagan, the salaries of those at the very top have reached astronomical levels. This is partly due to remuneration committees being chosen, as Piketty says âin a rather incestuous mannerâ. The TUC favours a role for ordinary workers on remuneration committees, acting as a break on executive excess.
Similarly, whilst global collective bargaining may be as utopian as a global tax on capital, the International Labour Organisationâs must-readÂ âGlobal Wage Reportâ, which is updated every two years, consistently shows that inequality between those at the top and those at the bottom is lower in countries with high collective bargaining coverage.
None of this is to deny Pikettyâs important observations about the role of taxation in restricting inequality, but perhaps we should have a wider view of how to bring this about.