So Thomas Piketty has the Pope onside. Given that the book is outselling the bible currently that really is something. There have been so many reviews of the book that the Washington Post even published a ‘how to write a Piketty think piece’ guide. The one disappointing aspect of the book so far is that the response has been dominated by economists. No offense, but that is only a very narrow contingent of the total potential audience. And Piketty goes out of his way to make this point.
Below are some thoughts from a broader political economic perspective- some are highlights, some are questions, some are critiques (someone who isn’t a neo-classical economist has to!) This is a major work of eighteenth/nineteenth century style political economy- which is a good thing in that it becomes a sweeping vision rather than simply a narrow technical analysis (though the data is key to its force.) It is excellent but not flawless. In fact, in some respects ‘Capital’ is deeply problematic. It is in its political economy that a number of problems are revealed.
1. This is a book about wealth and power. It is very strong on the drivers of wealth and ‘divergent’ tendencies of capitalism. It is much weaker on power. What are the under-pinning power relationships that drive these forces? We see a labour-capital struggle reminiscent of Marx’s Das Capital (hence the title?) but what makes one stronger than the other and what response can shift this power imbalance if a global wealth tax remains out of reach?
2. The divergence matters. Power generates wealth and wealth generates power. It is a mutually reinforcing model of power inequality. I just wonder whether wealth and power might be a better frame for this book than ‘capital’.
3. Piketty is a big fan of ‘common utility’ as an ethical basis for a certain amount of inequality. The modern philosophical god-father of this work is John Rawls; the historical god-fathers are Enlightenment thinkers, most particularly Jean-Jacques Rousseau. He strangely places Amartya Sen and John Rawls in the same category. However, the latter crafted his arguments on the basis of idealistic institutions (Sen explicitly does not). That is why Piketty ends up with some impractical proposals which are interesting from a philosophical rather than pragmatic perspective.
4. However, on the contention that institutions rather than economics determining social justice, Piketty is spot on. That is the starting point for an understanding of how we may begin the reverse the divergence.
5. He is weakest on the arguments for particular institutions. Rawlsian analysis almost always is. For example, his proposals for dealing with European public debt are confiscatory (10% tax on wealth > 1m Euro). For example, it would hit many ordinary Londoners, Parisiens etc spectacularly. It would also concentrate wealth further as many houses around the Euro 1 million mark would have to be sold in order pay/avoid the tax. It would end political support for the broader wealth taxes he proposes.
6. He doesn't claim that national debt is not an issue unlike some others on the progressive wing of politics. He prefers wealth taxes to inflation (or partial default) and both to austerity. It’s not convincing that there is a choice between the three. They may all be necessary to some degree. He also deploys a strong social justice argument against national debt. Why do we pay more interest to the wealthy than we spend on higher education?
7. There is definitely a role for wealth taxes in confronting divergent forces (and progressive taxation to a lesser extent – his proposals on this are wide of the mark also). The political limits are significant, however. Therefore there are a range of other interventions that are desirable/necessary. There needs to be a spread capital ownership. Perhaps any wealth taxes could go into a sovereign wealth fund for investment in collective ownership models. Some private wealth would thus be converted into public wealth. Some of these funds could be used for small business funds or funding employee investments in their firms.
8. Productivity is a social construct and subject to manipulation by the powerful. This is a critical point. There is no way of assessing the marginal productivity of ‘super-managers’. Their astonishing level of remuneration are culturally and institutionally established. Again, we are into the power dynamic of wage earners v bonus recipients.
9. Piketty deliberately moves beyond the predators v producers framing. He doesn’t go for moral inculcation. He understands that these practical interventions are critical albeit encased with a wider ethical system (based on the ethics of the Declaration of the Rights of Man and John Rawls).
10. The role of the state is greater than ever. This is often overlooked. Anyone looking to change the power dynamics in the society should under-estimate the role of the state in provoking change. However, I would question whether even this more powerful state can alone achieve the type of power re-distribution that we are beginning to thirst for as western societies. Piketty goes out of his way to ensure that a more adaptive form of state organisation remains on the agenda. This is a smart emphasis and this more adaptive state might innovate ways of supporting the asset base of the less powerful.
11. This book is fundamentally about power imbalances between capital and labour and the institutional arrangements that underpin them. Did I mention that?
On the subject of wealth this is a brilliant work. On the subject of power it is important but poses more questions than it provides real solutions. I wouldn't say that is a criticism - more a future challenge. His next challenge – and our challenge too – is to consider what real rather than idealistic institutions may address the widening power chasm that we see. Big political economy is back.