Capital & Ideology (Thomas Picketty) : Book review

About the book :

French economist Thomas Piketty published Capital and Ideology in French (September 2019) and then in English (March 2020). The book is somewhat an updated and enriched version of Picketty’s great success, Capital in the Twenty-First Century (2013), which focused on wealth and income inequality only in Europe and the United States.

After exploring historical and contemporary justifications for inequality, Piketty outlines, in his new book, potential means of redistributing wealth.

Key insight #1 : Inequalities are never “natural”

Inequalities are never “natural”: any regime justifies them by an ideology and builds them by laws, taxation, organization of property, education system… The system of inequality that prevails in a given country is first of all the result of political and ideological choices

The central message of Picketty is that behind every inequality is a system of justification that ensures its perpetuation. However, there is no determinism: a bifurcation is possible, if the right political and ideological mobilization is there.

“Every human society must justify its inequalities: unless reasons for them are found, the whole political and social edifice stands in danger of collapse.” 

Key insight #2: Inequalities have been growing since the 1980s after entering in the post-communist and hyper-capitalist word

After the fall of the Soviet Union, the world has entered a new unequal regime, which the author describes as “neo-proprietarist”, reviving the sacralization of private property in force in the 19th century. This regime glorifies the “society of winners “and justifies the explosion of inequalities by the fact that the most talented people deserve to enrich themselves by reward for their exceptional productivity.

Interpretation. The share of the top decile (the 10% highest incomes) in total national income ranged between 26% and 34% in 1980 in the different parts of the world and from 34% and 56% in 2018. Inequality increased everywhere, but the size of the increase varies greatly from country to country, at all levels of development. For example it was greater in the United States than in Europe (enlarged EU, 540 millions inhabitants), and greater in India than in China.

Sources and series: see piketty.pse.ens.fr/ideology

Interpretation. In 2018, the share of the top decile (the 10% highest incomes) in national income was 34% in Europe (EU+), 41% in China, 46% in Russia, 48% in the United States, 54% in Subsaharan Africa, 55% in India, 56% in Brasil and 64% in the Middle East.

Sources and series: see piketty.pse.ens.fr/ideology

Interpretation. The bottom 50% incomes of the world saw substantial growth in purchasing power between 1980 and 2018 (between +60% and +120%). the top 1% incomes saw even stronger growth (between +80% and +240%). Intermediate categories grew less. In sum, inequality decreased between the bottom and the middle of the global income distribution, and increased between the middle and the top.

Sources and series: see piketty.pse.ens.fr/ideology

Interpretation. The share of the top decile (the top 10% highest incomes) in total national income was about 50% in Western Europe in 1900-1910, before decreasing to about 30% in 1950-1980, then rising again to more than 35% in 2010-2020. Inequality grew much more strongly in the United States, where the top decile share approached 50% in 2010-2020, exceeding the level of 1900-1910. Japan was in an intermediate position.

Sources and series: see piketty.pse.ens.fr/ideology

Interpretation. The top marginal tax rate applied to the highest incomes averaged 23% in the United States from 1900 to 1932, 81% from 1932 to 1980, and 39% from 1980 to 2018. Over these same periods, the top rate was 30%, 89% and 46% in Britain, 18%, 58% and 50% in Germany, and 23%, 60% and 57% in France. Fiscal progressivity was at its highest level in the middle of the century, especially in the United States and in Britain.

Sources and series: see piketty.pse.ens.fr/ideology

Key insight #3 : Picketty’s recipe to tackle rising inequalities

• Granting employees voting rights in (fairly large) companies with capping of large shareholders voting rights

• Putting in place a progressive tax on income (all income), inheritance but especially on wealth (all wealth) so that capital circulates more

• Creating a Capital endowment for any young person entering working life: A cash payout of two hundred and thirty-one thousand dollars—the equivalent of sixty per cent of the average adult’s net worth. (Piketty has called this system of capital endowment “inheritance for all.”)

• Creating of a basic income and education capital for everyone, up to the education expenses of the privileged groups, to be used throughout life

• Extending the carbon tax to all carbon emissions so that it takes into account the realities of climate change, with a great contribution from polluting companies

• Renegotiating treaties and trade agreements, which force countries to compete with each other for who has the lowest taxes on wealth and income, starving national social systems and increasing financial inequality