CAPITAL AND IDEOLOGY
by Thomas Piketty
Belknap Press, Cambridge, Massachusetts
Hardcover: 1,104 pages
Reviewed by Colin Teese
Back in 2014, French academic economist Thomas Piketty published Capital in the Twenty-First Century. His aim was to codify what he called the “grand dynamics” that drove the accumulation and distribution of capital. He brought to our attention new facts and penetrating observations about the evolution of inequality and prospects for economic growth, which are at the heart of the political economy.
He brought into clear focus the issue of inequality as a worthwhile source of academic study. Before that book, there had been little structured debate about the subject. Piketty told us that, due to a lack of adequate data and clear, guiding theories, we would be unable to tackle the problem. All the more so because those on the conservative side of the political divide deemed it to be an issue of small importance.
Thus, at the time of its release, Piketty’s Capital in the Twenty-First Century became immediately controversial – within the economics profession and more widely in the business community. The prestigious British newspaper, The Financial Times, roundly condemned the work, in particular the idea that unequal wealth distribution on a gigantic scale threatened democratic purpose and undermined social justice. As well, the FT insisted, the author’s theoretical basis was flawed.
Piketty’s quest for data had led him to discover a fundamental truth about the unequal distribution of wealth: the percentage rate of return on capital had long exceeded the percentage rate of growth in output and wages. While ever this continues, the accumulation of capital will exacerbate inequality and allow wealth to accrue into fewer and fewer hands.
This, the author characterised as the essential contradiction of capitalism.
A contradiction, he might have added, that, if left uncorrected, would turn capitalism into a game like Monopoly, which ends when one person owns everything.
Capital and Ideology builds on Piketty’s earlier work, based on greater analysis of more mate-rial and further thought on what truths may be derived from the new material. He now believes, as a result of new, research-based observation, that there is a need to take full account of ideology.
Specifically, he rejects the conservative defence of inequality, that it has a legitimate basis in nature. He accepts, of course, that various elites will claim virtues for inequality to their purpose. In particular, the argument that inequality benefits both the poor and society as a whole; and that attempts to disturb it will harm community values.
(By way of illustration of contradictory attitudes among leaders, Piketty reveals that Thomas Jefferson, whose contribution to the U.S. Constitution was to assert that all men were born equal, actually owned 200 slaves.)
Piketty also rejects the conservative defence of inequality in terms of inevitability – there is, he insists, nothing inevitable about it. Inequality has varied widely, over time and space, as well as in magnitude and structure. Political processes have led to enduring changes, including universal voting rights, health care and education. All have gone some way to reducing inequalities.
The first section of the book relates to what might be called a history of inequality regimes.
The period before the 18th century he calls a period of trifunctional logic. Distinct social groups existed, effectively class based – clergy, nobility and the Third Estate.
The clerics provided the intellectual and moral base for society. The nobility was the military class, providing the society with security, protection and stability. The third estate, peasants, artisans and merchants, did the work.
Clerics and the nobility owned most of the property and con-trolled the various centres of influence and power.
Over time these trifunctional structures came to be delegitimised. The transformation into property ownership societies came slowly – in some cases stretching across centuries. Even so, the differences between then and now have not been that large: except for the brief period from the middle of the 20th century to the 1980s, when revolutionary changes driven by the United States under President Reagan allowed uneven wealth distribution to gain new traction.
Piketty readily acknowledges some differences between societies, regions and nations. As he makes clear, though, all reveal readily identifiable common features – not only in Europe and the United States, but also India, China and Japan.
Further, inequality is not confined to rich capitalist societies. It is most obviously present in the United States and Britain, though in the latter case changes might well be on the way. But it is alive and well in Communist China and in post-Soviet Russia – which is not to say that it was absent in the former USSR.
The author recognises that readers, having got past the early chapters of the book, will be tempted to skip over much of the detailed history of inequality within which important gems are to be unearthed.
This reviewer can confirm that that would be a mistake. One particular gem solves the puzzle many have about what happened to worker-oriented political parties – what Europeans like Piketty call Social Democrats. All over the Western world these disappeared.
Piketty explains that these educated elites, who once supported working people, now have joined with the merchant class to form a new elite leaving workers without political representation.
Hawke/Keating Labor was an example in government. Back in the early 1980s they managed to persuade workers to allow wages to fall in order to reverse what had been happening since 1945, and thereby allowed a greater part of total wealth creation to pass into the hands of business (capital).
What, then, is Piketty’s basic proposition? He has prescriptions and they are well founded. The most important sources of inequality are wealth accumulation.
He reminds us of the most successful policy in history to correct unequal wealth in the period 1945–80. Essentially it involved fundamental changes to tax, which flowed on to other areas, particularly education at all levels.
The tax changes involved steep progressive taxes on high incomes (70 to 90 per cent) in the U.S. and Britain and wealth taxes on inheritance. (By comparison, consumption taxes, so much in favour now, are regressive as they fall more heavily on the poor).
The imposition of these taxes did not prevent the achievement of the highest ever levels of growth and prosperity while at the same time moderating unequal wealth accumulation.
They were reversed in the neo-liberal revolution that Ronald Reagan and Margaret Thatcher frog-marched us into in the 1980s. They remain with us.
Piketty argues that policies of the pre-Reagan era are essential if we are to deal adequately with the issues of inequality.
Piketty is under no illusion that his prescriptions will be powerfully resisted. His response is to remind us that the history of all societies has been the history of the struggle of competing ideologies and the quest for justice. Ideas and ideologies, he believes, can overcome social position. For this to happen we need to forge a theory of the just society, a theory of property, a theory of education, of taxes, wages and democracy.
His own ideas are controversial but should not distract readers. They are more useful, in Piketty’s own words, as a stimulus for discussion and debate rather than a solution to the problems.
In that context he laments the fact that the social sciences (especially economics) cannot come together and work towards the construction of all the necessary theories.
By any measure one of the most important books of these times, all 1,104 pages of it.
Colin Teese is a former deputy secretary of the Department of Trade.