BackEconomic inequality after Thomas Piketty
A solution to the vexed problem of inequality will require more than a book
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By all accounts Thomas Pikettyis a phenomenon. At 43 this professor of economics in Paris has been feted in a manner befitting a celebrity. His book Capital in the Twenty-First Century, a lucid if somewhat technical work, has been hailed as a groundbreaking study of inequality in the western world. The topic has found resonance in academia but even more importantly it has raised the quality of public debate on the subject immensely.
Human inequalities—economic, social and political—have been around for a long time and predate empires and modern states. So what makes the topic so arresting at the present time? Two reasons are apparent immediately.
For one, economic inequality—as viewed from the perspective of income and accumulated wealth—is today at highest level since the end of World War II. In countries such as the US, billed as meritocratic societies, this is especially jarring. Compared with class-bound societies of an earlier age in Europe, the US has for long been considered an open society where education and hard work can unlock any door. Piketty shows something else. The top 1% of income earners now garner roughly one-fifth of share in income. This level of inequality is as high as the one that prevailed before World War I, the age of robber barons in the US. Elsewhere, in Europe and especially Britain, too, inequality has been on the rise.
The other reason for disquiet is the inability of western economies to restart growth five years after the global economic and financial crisis. Together, they have generated pent up resentment against the plutocracy in that world. Piketty’s book came in at the right time to give it intellectual ballast.
If the reasons for rising inequality—the rising share of capital in national income, the ripple effects that advantages of wealth have in spreading inequality across generations and other factors—have been exposed with great clarity by Piketty, his solutions are not realistic.
Here there are echoes of an inchoate socialistic fervour that mark our age. Inequalities are evident everywhere but the solutions are hardly systematic. If Piketty wants a global tax on capital, others (for example many in India) want the state to take over functions—from directly redistributing wealth to taking back control of businesses and economic functions given up since the so-called Washington consensus was forged. Unlike the Marxism of an earlier age, these are unsystematic solutions.
The reasons are not far to seek. Piketty, for example, is candid to admit the unrealism of his proposals. If that is so, why not go in for full-blooded socialism as before?
The short answer is that the memories of economic failures produced by socialism since the end of World War II are fresh even now. No one, not even Piketty, advocates them. If classical socialism of the Soviet variety is unsustainable, then inequalities generated by markets, too, are evident now. Hence the prevalence of mixed, case-by-case, unsystematic solutions.
If Piketty wants a global tax on capital, activists in India want rights of all manner for the poor. Both ignore the costs of such measures and their unsustainability. Perhaps they should re-read their Marx: growth matters above all. Except for mild recessions, the period from 1950-2008 was one continuous one of growth across the world. If this growth is perceived to be unsustainable now, the answer lies in finding solutions to revive it. To claim that periods of growth are mere intervals between periods of stagnation is not is not an argument at all, it is rank pessimism.
Piketty’s book gives a meaningful analysis of inequality and its origins over the past 250 years. In itself this is an intellectual achievement of a high order. The solution to the vexed problem, alas, will need more than a book.
Is economic growth a cause or a solution for inequality? Tell us at views@livemint.com
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