Thomas Piketty, was dubbed the "rock star economist" after his best-selling book "Capital in the 21st Century" was published in 2014. It was remarkable that a 700 page economic tome on inequality became a world best-seller and was so widely discussed. Piketty’s key argument in "Capital" is that capital would grow faster than income from work, boosting inequality which was already rising.
Capital's success was that it focused on inequality with such wide and deep historical and statistical analyses that it was convincing. For decades, most economists had not focused on inequality, naively assuming it would be addressed by growth. Piketty also made a strong case for active redistribution. Happily, his latest two books on the subject are very short at 82 and 119 pages and both are very readable.
Piketty begins "Nature, Culture and Inequality" (NCI) by asking are there any such things as "natural occurring inequalities."? He examines the example of Sweden, one of the most equal societies for decades. Yet just over a century ago Sweden was a very unequal and stratified country, where only the richest 20% of men, with property, could vote. Sweden was transformed in a short time after the Social Democrats (SD) got power in the 1930s. They embarked on a radical structural and political development of state capacities to ensure equity. Sweden thus became one of the most equal societies in the world between 1930 and 1980 under SD rule. He thus argues that political change can be swift, if those in power are effectively challenged.
Piketty demonstrates that there has been an uneven march towards greater equality in Europe. He shows that what he calls "the Great Redistribution" took place in Europe between 1913 to 1980, when there was a remarkable reduction in inequality in wealth in many countries. "The Great Redistribution" had a significant impact on reducing the disparity between the top 10% and the next 40%. The top 10% ownership of wealth before 1913 had been a massive 90%. The next 40% had nothing in 1913. Now this 40% of the population, the middle class, own 40% of the total wealth in Western Europe. This 40% who are neither rich like the top 10%, nor poor like bottom 50% are 40% of the population. They now have an average wealth of €200,000 per head.
However, Piketty points out that "the Great Redistribution" of wealth "had practically no effect on the bottom 50%." The top 10% still own 55% of all wealth and the bottom 50% still own almost nothing at 5%. Their number is five times that of the top 10%.
On income inequality, there was a big movement towards greater equality over the last two centuries but especially in the 20th century. The share of income going to richest 10% fell from 50% before 1913 to 30/35% today and the share going to the poorest 50% rose from 10 or 15% to 20 or 25%. The income share going to the poorest 50% today is a fraction of the share going to the richest 10% on average.
This book, NCI, covers several major aspects of inequality including a review of the deep embedded inequality that colonialism threw up; it also analyses inequality of income and inequality of wealth, as well as gender inequality.
One of the most radical interventions against inequality has been the development of the welfare state; - in increased public spending on pensions, on education and on healthcare. These have been major steps in inequality’s reduction. Spending on welfare, health and education are supported widely in most countries, including by the richest who are willing to pay more in taxes. While educational spending increasing tenfold from 1913 it has stagnated since the 1980s and 90s. However, there still has been greater educational participation.
Piketty is one of the world's authorities on taxation, its history and its importance in reducing inequality. There is a short chapter on progressive taxation and how it has a major impact on inequality. He says the increasingly progressive tax system in Europe was a decisive factor in building the welfare state because it "provided a contractual basis for taxation that made the rising tax levels acceptable." Indeed Ireland is a good example of this. We have the highest market inequality in Europe, but this is alleviated by our tax and welfare system. Since the 1980s most European states spend around 45-49% of national income but in the unequal days before 1913 it was only 10% for most countries.
Piketty demonstrates that most climate destruction is imposed by the richest people in the world. The top 10% produce 29 tons of carbon each, compared to the bottom 50% who emit only 5 tons each. The sustainable level is 2 to 3 tons. The difficulty in addressing climate destruction is that the biggest destroyers of the planet are the most powerful. Unless they are faced down, they may not change despite the issue being existential - a threat to all life. The election of Trump shows a passivity by many on the issue. Yet substantial progress has been made in recent years.
In a chapter on nature in NCI, Piketty concludes that "no credible solution to the challenge of global warming is imaginable without a drastic reduction in inequality ... first, because of the disparities in carbon emissions between countries and the global North and South and secondly because of the carbon inequalities within countries." He again points out that most climate destruction is imposed by the 10% richest people in the world.
NCI is an excellent review of Piketty's work on taxation and a great short general reader to inform people on the state of inequality in the world and why it matters so much. It has several charts, each well explained, giving the picture of the extreme global wealth inequality by region. Piketty makes a great case for progressive taxation and indeed for taxation itself. As US Court Judge, Wendel Holmes memorably said of tax, "I like to pay taxes. With them, I buy civilisation."
The second book, by Piketty and Sandel, "Inequality; What it Means and Why it Matters" is based on a discussion between Thomas Piketty of the Paris School of Economics and Michael Sandel, professor of political philosophy at Harvard. It covers similar inequality issues in a discursive style. Both authors are highly critical of the way Social Democracy and progressive politics have failed to continue the redistribution, the progressive taxation and the improvement in public services since the 1980s. They call for a new Social Contract with a revision back to the high redistributive taxes that existed for much of the 20th century in the US and Europe. They regard Social Democracy as "frozen", with educational spending at the same level as the 1990s. They are unambiguously the polar opposite to the Trump/Musk war on the state, on taxation, on regulation and on equality.
This book is critical of progressives Tony Blair, Bill Clinton and Gerhard Schroeder for failing to challenge "the market triumphalist premise - namely that market mechanisms are the primary instruments for defining and achieving the public good." Piketty and Sandel discuss Sandel's book "The Tyranny of Merit" where he is highly critical of US and European progressives who argued that in the “age of merit” the solution to globalisation, inequality and deindustrialisation is education. Sandel argues that they ditched the western working-class and its values, paving the way for Trump and rise of the European Right. Sandel believes the liberal left’s pursuit of meritocracy has betrayed the working classes. He argues for a politics centred on dignity and solidarity. Sandel points out that first there is no “level playing field." Secondly and worse, he says that the centre Left elites implied that those who do not rise only have themselves to blame. The new centre-left abandoned old class loyalties and solidarity and called on working-class individuals to get educated in order to face up to a globalised world.
Piketty also says in this book that "centre left governments in recent decades have developed a religion of free trade, without any form of regulation, that has gone far too far." He says it is total hypocrisy to allow the wealthy "the right to press a button to transfer vast sums of wealth to another jurisdiction" with no possibility of taxation, and then the government tells its citizens "that's too bad we don't know where the wealth is gone. There's nothing we can do."
They are highly critical of Clinton's free trade agreements which transferred so many working class jobs abroad without any form of regulation. The alternative of "Managed" or regulated trade favoured by economists like Dani Rodik was and is still ignored. In a chapter on the future of the left, they focus on economics and identity arguing that the left should not cede patriotism to the right and that people like to have a sense of place and of identity.
The world's two richest men Musk and Putin, a libertarian and statist, now have power over a very large part of the world's population. Both are committed to inequality. Does this set back progress? Only for a short while we hope, because today, most politicians are committed to greater equality, albeit with unequal levels of commitment.
This article first appeared as a review in The Irish Times.
Paul Sweeney @paulsweeneyman
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.
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