There is a simple way to package information that, under the right circumstances, can make it irresistible. All you have to do is find it.
– Malcolm Galdwell, “The Tipping Point”.
The 2008 Global Financial Crisis burst the myth of the United States of America as the land of the possible – one where wealth is generated by work, ingenuity, wise investment and risk taking. It sparked a backlash against the capitalist institutions – the commercial and the investment banks – all over the world. It manifested in the form of the “occupy” movement in major countries. It invigorated the essentially dismissed European and Asian debate about redistribution of income and wealth.
A voluminous contribution to this debate has been made through a 577 page book “Capital” by the French Economist Prof. Thomas Piketty (pronounced Tome-AH PEEK-a-tee). It has also started a debate among economists on the issue of global inequality, a debate that was earlier limited to progressive economists. It is a study of the history of evolution of global capital. In a didactic manner of writing, supported by graphical illustrations, the book makes interesting literary references to Jane Austen, Balzac and Fitzgerald.
The central argument of the book, which is portrayed as an empirical law of capitalism, – the rate of return to wealth is historically greater than the economic growth rate – has deep implications. All else being equal, slower global growth increases the importance of wealth in society – even more so in an ageing global population. Throughout history this has led to a steady concentration of wealth in the hands of a few, disrupted only by violent forces of wars (French Revolution, World Wars) and economic depression (1929) – which subsequently led to a period of relative egalitarian distribution of wealth and sprawling welfare social states.
The book argues that the post 1970s shift in international mindset to a morally ambiguous “meritocratic” economy and international tax competition has brought us to the precipice of a class conflict – with wealth and inequality levels reaching those only seen before the First World War. Piketty’s statistical research suggests that the chasm between the 1% and the 99% is not a distinct anomaly of our times – it is, indeed, a natural product of capitalism as it has been historically practised. There is no reason for us to believe that capitalism will naturally reverse rising inequality. He argues that the system of capitalism has worked perfectly normally – it would never have worked any other way, we are naive to think otherwise – and we should expect more of such consequences.
This book is not a work in technical-theoretical economics, one that might repel potential readers. It is a contribution in broader social sciences – combining history, philosophy, literature, statistics and economics – with a deep sense of social welfare. This was evident when a change in Seattle’s minimum wage law cited Prof. Piketty’s work.
This book draws data-based inferences that confirms many priors. What it asks of us is – “What are we going to do about inequality?” While many have criticized the prescribed policy recommendations – a confiscatory global tax on capital, a progressive tax on income with transparency in financial transactions – presumably left-leaning ones, nobody refutes the fact that his is a much desired contribution of concrete historical data in the study of economic inequality.
Piketty’s ideological opponent in history, Friedrich Hayek, wrote in “The Road to Serfdom” – “By moving from one country to another, one may sometimes twice watch similar phases of intellectual development.”
Having based his work mostly on Europe and America, the future predictions that Piketty makes might as well turn out to be wrong, especially for a developing country like India. We might head into an era of unprecedented economic growth and a more egalitarian society. But it would be disingenuous and self-defeating to dismiss these arguments that might do well to caution us against similar policies and urge us to figure out alternative ones.