Review: Capital in the Twenty-First Century – Thomas Picketty
The poorest fifth of Britain’s households are among the most economically deprived in Western Europe with living standards on a par with Slovenia and the Czech Republic. Meanwhile, the richest 1% in the UK is among the richest in the world, taking about one third of total incomes.
Inequality is one of the few things in which Britain remains a world beater – of the world’s ‘developed’ economies it is second only to the US. But the seemingly relentless growth of inequality is a worldwide phenomenon. According to Oxfam the richest 85 people in the world have the same amount of wealth – $1.7tn – as the bottom half of the Earth’s population: 3.5 billion people.
The serious strategists of capitalism vaguely recognise that the future of capitalism is threatened by growing inequality. When the head of the IMF and the governor of the Bank of England join in the chorus demanding ‘something should be done’ or ‘stability’ will be threatened, it is clear that fear of strikes, revolt and revolution is growing among society’s elite.
It is against this background that the French economist Thomas Piketty has published ‘Capital in the Twenty-First Century’. Piketty has worked with other economists over the last fifteen years to give empirical evidence of a long term trend for capitalism to increase inequality. Piketty correctly argues that the economic upswing which followed the second world war was exceptional, capitalism has now returned to ‘normal’ with a clear tendency for inequality to grow. He explains, for example, that “the richest 1% appropriated 60% of the increase in US national income between 1977 and 2007″.
Capitalism leading to inequality is not a new concept. As Marx put it well over a century ago, capitalism means: “Accumulation of wealth at one pole is at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole.”
Nonetheless, the statistical information drawn up by Piketty and his associates is very useful, and is also clearly seen as a threat by some who defend capitalism. The Financial Times has leapt to attack his data on inequality, picking out what seem to be relatively minor statistical errors to try and discredit Piketty’s general conclusions. The problem with this, though, is that far from being ‘revolutionary’ or ‘new’ Piketty’s statistics confirm a trend that has been clear for decades. Piketty himself has responded by saying that, far from his book exaggerating inequality, on the contrary research since it was published shows that: “the rise in top wealth shares in the US in recent decades has been even larger than what I show in my book”.
While some on the right have tried to discredit Piketty, his book has been a hit with the public, topping best sellers lists in many countries. Many on the left have praised it, including in Britain Unite general secretary Len McCluskey, who has said he is ‘excited by where Piketty might take us.’ However, those who hope the book will provide a convincing analysis of why capitalism creates growing inequality will be disappointed, even more so those that are looking for a solution.
The title of the book, echoing Marx’s central work ‘Capital’, has led many commentators to claim that Piketty is the modern successor to Marx. Piketty has said that is not how he sees himself and that, in fact, he says he has never read Capital. This isn’t surprising given that where Marx is mentioned it is usually to criticise him, often inaccurately.
He claims, for example, that “like his predecessors Marx totally neglected the possibility of durable technological progress and steadily increasing productivity” and that “Marx’s theory implicitly relies on a strict assumption of zero productivity growth over the long run”. These statements are the polar opposite of Marx’s real position. Marx explained that a fundamental feature of capitalism is the way that the drive for profits forces the capitalists to compete against their rivals by investing in science and technique – ‘technological progress’ – in order to increase productivity. The blind drive for profit leads to crisis – to slumps and recessions – but has also created the material foundations for a democratic socialist society.
The fact that today levels of investment are at an historical low – not least in Britain – is an indication that capitalism is a system which is now bankrupt and incapable of taking society forward. Capitalism has created – as Piketty describes – enormous wealth, but only a democratic socialist plan of production would allow the productive forces to be harnessed to both protect the planet and meet the basic needs of humanity which capitalism is increasingly unable to deliver – for example the right to a decent, secure well-paid job, to a home, a free education and to choose to retire at 60 or younger.
Marxist or even socialist ideas are however a closed book to Piketty. He does not attempt to explain the reasons for capitalist crisis. Nor does he deal with the production of goods or their sale at all, instead concentrating exclusively on the division of wealth. His ‘new theory’ to explain growing inequality is that the rate of return on ‘capital’ always exceeds the rate of return on ‘income’. Piketty says that this is the central contradiction of capitalism. However, he does not explain why this should be the case.
In addition, what he calls ‘capital’ is a misnomer. For Marxists not all wealth is capital, but only that wealth that is put to work by the capitalists in order to try and make a profit; the root source of that profit is the exploitation of the working class. But when Piketty talks of capital he means all wealth, regardless of whether it has been invested by a capitalist; a diamond necklace, or a worker’s home. Nor is the strength or otherwise of the workers’ movement, and its ability to fight to defend workers’ pay and conditions, considered by Piketty as a factor in what share of wealth goes to the capitalist class, and what goes to the workers.
The enormous flaws in Piketty’s book mean that it does not come close to offering an analysis of capital in the twenty-first century, something that even his fans recognise. For example, ex-US Treasury Secretary Lawrence Summers praises the book as a ‘tour-de-force’ but is actually very skeptical about its analysis. He says:
“Looking to the future my guess is that the main story connecting capital accumulation and inequality will not be Piketty’s tale of amassing fortunes. It will be the devastating consequences of 3D printing, artificial intelligence, and the like for those that perform routine tasks. Already there are more men on disability insurance than doing production work in manufacturing.”
This voices a real fear of the capitalist class which Piketty does not even touch on. New technology is increasingly making every individual worker incredibly productive, but for every productive worker there are growing numbers unemployed or underemployed. This is a recipe for economic crisis and massive social instability.
It also makes ever clearer the need for socialism, so that the technology which is a problem for capitalism could be harnessed – not in order to throw workers on the scrapheap, but in order to dramatically shorten the working week without loss of pay to 30 hours a week or even less. The struggle for an eight hour day has been going on for as long as the organised workers’ movement, yet has still not been achieved for millions of workers.
Piketty is interested not in ending capitalism, but in rescuing it. Asked on Newsnight whether he wanted to get rid of inequality he made his position very clear. In Britain at the moment, he pointed out, the bottom 50% own 3% of the wealth.
This is too little – but five or maybe 8% would be okay!
To achieve this extremely modest increase in equality, Piketty calls for a major increase in the top rates of national income taxes to 80% and for a progressive global wealth tax. Socialists support these demands, which would receive a huge popular echo from the majority of the population.
However, they have been gently mocked even by the most enthusiastic of Piketty’s fans. Even the well-known Keynesian economist Paul Krugman, who lavishes the book with praise, has to admit that, “it is easy to be cynical about the prospects for anything of the kind”. Paul Mason put it more brutally in the Guardian: “It is easier to imagine capitalism collapsing than the elite consenting to them.”
This gets to the nub of the issue. Piketty hopes to appeal to the ‘good sense’ of the capitalists, pleading with them to recognise that if they want to preserve their system it would be better to give a bit more to the ’99%’. This is not dissimilar to Labour leader Ed Miliband’s calls for a ‘fairer capitalism’, although Miliband has made no proposals to dramatically increase taxes on the rich or big corporations.
Caring, sharing capitalism?
François Hollande, President of France, did include in his election pledge a proposal to create a ‘millionaires tax’. For this he faced huge opposition from French capitalism. Hollande eventually got a version of his very limited tax on the rich through the constitutional court. However, he has completely capitulated to the demands of the capitalists. As the right-wing Forbes magazine declared in a banner headline: “Hollande Converts, Proposes Austerity and Lower Taxes To Boost Growth in France.”
No amount of pleading will create a caring, sharing version of capitalism. The only way the capitalists can be forced to make significant concessions to the majority is if they are faced with mass movements of the working class which they fear threaten the future of their system. Even when concessions are made, however, they will attempt to recoup them at a later stage.
Any government which remains within the framework of capitalism will not be able to implement Piketty’s proposals. Worldwide the super-rich have £20 trillion stashed away in global tax havens, around half of which is owned by a mere 100,000 people. This is greater than the national debts of all the OECD countries added together. No tax is being paid on this vast wealth. In Britain alone it is estimated that £120 billion of tax is avoided or evaded mainly by the rich every year.
Piketty partially recognises that the capitalists will always try to escape paying taxes by moving money abroad and so on. This is the reason that he adds a worldwide progressive wealth tax to his proposals. Again, socialists would support this demand but it is not possible to separate the introduction of such a measure in a world of capital flows – which national governments are unable to control – from the need for wider, socialist measures. Who would implement such a tax? Without a state monopoly of foreign trade and the nationalisation of the banks, first of all on a national and then on an international scale, a worldwide millionaires tax could never be implemented. It would be similar to trying to pull out the claws of a wild tiger ‘peacefully’.
Despite its limitations, the popularity of Piketty’s book is nonetheless an important indication of the growing search for an alternative to twenty first century capitalism, which offers a dismal future of low paid jobs, zero hour contracts and unaffordable housing. Many who plough through Piketty will then go on to find the original ‘Capital’ along with the other works of Marx, which give a far more ‘modern’ and ‘relevant’ analysis of capitalism than Piketty is able to do.