Commentary / World

Thomas Piketty takes aim at wealth inequality

by Leonid Bershidsky

Bloomberg

French political economist Thomas Piketty’s last book, “Capital in the 21st Century,” wasn’t just a publishing phenomenon: It drew the world’s attention to the problem of growing inequality. In his latest work, the 1,200-page-long “Capital and Ideology,” he proposes a solution — in a word, expropriation.

If the first work was largely an economic treatise, the second (so far only available in French) is essentially a political one. It tracks how different political ideologies have justified and promoted inequality since the Middle Ages. To Piketty, the years between 1950 and 1980 were the most successful for “egalitarian coalitions,” by which he means parties of the left, but these have since faltered. To address that failure, he attempts to set out a manifesto for the modern left.

To Piketty, 1980 marked a regrettable turning point as leaders such as U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher turned their backs on progressive taxation. He writes:

“Both American and European growth were stronger in the egalitarian 1950-1980 period than in the subsequent period, characterized by rising inequality, raising serious questions about the social utility of the latter. The greater increase in inequality observed since 1980 in the U.S., compared to Europe, has also generated little additional growth, and in any case has not benefited the poorest 50 percent, who have experienced total stagnation in their absolute standard of living in the U.S. and a collapse in their relative level.”

According to Piketty, today’s top 10 percent are way too wealthy throughout the world. Meanwhile, the working and middle classes have been abandoned. That, he argues, is a better explanation for the rise of populism, U.S. President Donald Trump and Brexit than globalization (itself a mechanism for increasing inequality) or the instinctive xenophobia at the bottom of the social ladder.

In Piketty’s view, parties of the left could have prevented it — but had lost their way. Instead of representing workers and the middle class, they came to stand for the most educated part of society, the intellectual elite. That has resulted in a throwback to medieval government, with the center-right playing the role of landowners and the center-left that of the educated clergy. This, according to Piketty, explains the decline in turnout at elections among working-class and lower middle class voters.

The economist argues that new “egalitarian coalitions” must be formed, but these are unlikely to happen without a radical reconstruction of their ideological foundations. The idea that the left needs new, more ambitious goals to reverse its electoral decline is in itself not new, but Piketty’s contribution to its development redefines the word “radical.”

The final part of the book revolves around two tables that contain his tax proposals. Even without his pages of explanation, they speak volumes.

The confiscatory taxes on wealth should, under Piketty’s plan, do away with the concept of permanent property or accumulated wealth. He writes that the only argument that really opposes this logic is that of the Pandora’s box, according to which questioning private property rights would inevitably lead to widespread chaos, and that it would therefore be better never to open this box. But this conservative argument has been definitively undermined by the experience of the 20th century, which has shown that very high tax progressiveness can go hand in hand with rapid growth and that it is a constituent element of a development strategy based on relative social equality.

Piketty doesn’t believe in meritocratic explanations of large wealth: In his view, U.S. tech titans are no better than Russian oligarchs because, like them, they have only exploited society’s resources, from public investment in science to the tax and legal systems created to favor them.

His idea, however, isn’t to nationalize all wealth like a Soviet-style communist; the collapse of that system has, in Piketty’s view, contributed to the current rudderlessness of leftist parties. Instead, he would redistribute assets by giving every adult a lump sum at the age of 25. In industrialized countries, he calculates, the grant would amount to about €120,000 (¥14.4 million) per person.

The progressive income taxes he proposes would allow governments to give everyone a basic income equivalent to 60 percent of the average wage in wealthy nations and cover the costs of decarbonizing the economy.

But what if the rich don’t want to pay these confiscatory tax rates and decide to emigrate? First, hit them with an exit tax, Piketty says, and then work to establish a global justice system that makes it impossible to hide from expropriation anywhere. To that end, he proposes a supranational parliament comprised of members drawn from national legislatures. The latter would be elected under different campaign finance laws to those of today: Citizens would get vouchers of, say, €5 (¥600) a year, to give to their party of choice.

Once you reach that utopian level of world reinvention, the myriad specific questions that occur to most people considering this vast project tend to recede into the background. Piketty’s book doesn’t do a good job of explaining how an inevitable collapse in property prices will affect the tax base and investment — or, indeed, in what form assets will be parceled out if the rich can’t sell 90 percent of their assets immediately.

That, perhaps, is all for the best: When you want to set a super ambitious goal, it won’t do to get bogged down in details. Nitpicking questions haven’t defeated the populists, so why should they hinder new “egalitarian coalitions”? Ideology isn’t about the nuts and bolts, it’s about bold vision.

For my part, I hope Piketty’s book shocks Europe’s listless center-left parties into moving beyond boring incrementalism. Focusing on subsidizing kindergarten costs, or making it slightly harder to fire workers, means political death by a thousand cuts, something Germany’s Social Democrats have found to their cost. Leftists should have the courage to propose major tax changes to fund big ideas like universal income and more effective environmental policies.

That, perhaps, will embolden the center-right, too, to make a case for more market-based inclusiveness, a more meritocratic society, as well as a stronger link between achievement and reward.

Both sides, however, would still have to debate those political forces that want to focus on identity and tradition rather than any economic vision; I’m pretty sure Piketty overestimates the role inequality has played in the recent rise of such forces.

If you can get through all of this book, you could believe that anything is possible — even “participatory socialism.” But it isn’t, and its very impracticality only detracts from Piketty’s economic analysis.

Leonid Bershidsky is a Bloomberg columnist.

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