Thomas Piketty’s latest book, Capital and Ideology, which is now also available in the English version, is making a lot of waves worldwide and especially in Europe.
Will ECB be used to eradicate inequality?
The new debate now being that – in order to combat the Covid-19 pandemic – since the European Union countries are receiving perhaps the largest stimulus package ever (from the ECB – European Central Bank) in their respective histories, will the money or the opportunity be really used to eradicate inequality.
Piketty’s fresh notion in this book in essence being to challenge the very mindset of governments in their conceptual thinking of managing national economies to ensure equitable growth & its rightful distribution. This new work from Piketty not only has the potential to become an even more politically influential work than the French economist’s 2013 overview of in-equality, Capital in the Twenty-First Century, but also carries a lot of lessons for our leaders at home and a relevance to economic governance per se in Pakistan.
As we know that his 2013’s book made a huge impact in many ways and in fact soared up the left’s agenda, ironically right in the heart of the developed western societies, especially the United States (US). Today, these issues that were raised by Thomas Piketty in 2013, are back to life and find themselves in the center of debate in the upcoming US elections, the current UK politics, Macron’s France, in Modi’s occupation of Kashmir and right here at home in the evolving social debate of rising unemployment and poverty, especially over the last two years.
If Joe Biden decides to choose Elizabeth warren as his running mate, the duo has a realistic shot at becoming the most redistributionist leadership, since Franklin D Roosevelt. However, easier said than done: In the UK a Jeremy Corbyn government could have achieved similar things but never got the voters’ nod and here in Pakistan a party that was voted into government for the first time on the very promise of equitable growth & fair distribution seems to have fallen prey to the long standing established order!
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Could leaderships around the world finally turn to ‘equality’?
In his new book, Piketty explains why this could be the moment for leaderships around the world to finally turn to ‘equality’, and if any indeed decides to do so, then what policies it needs to look at or adopt to make this happen. His premise is that inequality is a political choice. It is something societies opt for, and certainly not an inevitable result of technology (robots, etc.) or globalization.
Whereas, Karl Marx saw history as a class struggle, Piketty sees it as a battle of ideologies. Every unequal society, he says, creates an ideology to justify inequality. That allows the rich to leisure in their comfortable houses while the homeless freeze outside.
Piketty recounts justifications of inequality
In his rather ambitious history of inequality from ancient India to today’s US, Piketty recounts the justifications that are put forward and actually recurred throughout time: “Rich people deserve their wealth”; “It will trickle down”; “They give it back through philanthropy”; Property is liberty”; “The poor are underserving.”
“Once you start redistributing wealth, you won’t know where to stop and there will be a chaos” (a favorite argument after the French Revolution); “Communism failed.”
And last but not least, “The money will go to Black people – an argument that he says explains why inequality remains highest in countries with historic racial divides such as Brazil, South Africa and the US. Another common justification, which he does not mention, but is often raised by Joseph Stiglitz, is “High taxes are punitive” – as if the main issue were the supposed psychology behind redistribution rather than its tangible effects on peoples’ lives.
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Sacralisation of property
All these justifications add up to what Piketty calls the “sacralisation of property”, thereby arguing that today the “proprietariste and meritocratic narrative” is getting increasingly fragile. There is a growing understanding that the, so-called meritocracy has been captured by the rich, who get their kids into the top universities, buy political parties, and hide their money from taxation.
Moreover, he notes, the wealthy are overwhelmingly male and their lifestyles tend to be particularly environmentally damaging. For example, he opines, a person like Donald Trump – a climate-change-denying-sexist heir who got elected as the US President without releasing his tax returns – embodies the underlying problem.
Despite Piketty’s reservation, one might say that the case could be that the global support for redistribution is growing even faster than what Piketty acknowledges or thinks, especially in the US and Western Europe. Twice as many Americans now feel more distrust than admiration for billionaires, according to a HuffPost/YouGov poll. Millennials today are especially suspicious of success in the traditional sense and are already looking to define it in correlation to satisfaction and apathy.
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Covid-19 pandemic today raises new concerns
More American adults under 30 say they believe in “socialism” than “capitalism”, report the pollsters Gallup – Bernie Sanders and now Elizabeth Warren phenomenon speak volumes about this new and visible change, taking place amongst the American youth. Perhaps this new generation owns too little property to ‘sacralise’ it! Centre-right parties across the western europe have taken up populism because their low-tax, small-state story wasn’t selling any more.
Rightwing populism speaks to today’s anti-elitist, anti-meritocratic mood. However, it deliberately refocuses debate from property to what Piketty calls “the frontier” (what the others refer to as borders). That leaves a gap in the political market for redistributionist ideas. We are not at a juncture much like the one we had around 1900, when extreme inequality helped launch social democratic and communist parties.
The Covid-19 pandemic today raises new concerns on which way the pendulum will swing: Will addressing inequality remain on course or the haves of the world simply use it as an excuse to once again push for protection and exclusion.
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So what really is Piketty’s new redistributionist agenda?
He calls for “educational justice” (much like the pre-election slogan of PTI) – essentially, spending the same amount on each person’s education. He favors giving workers a major say over how their companies are run, as in Germany and Sweden. However, his main proposal is for wealth taxes.
Far from abolishing holding of property, he instead wants to spread it to the bottom half of the population, who by the way, even in rich countries have never owned much. To do this, he says, requires redefining private property as “temporary” and limited: You can enjoy it during your lifetime, in moderate quantities.
He proposes wealth taxes of up to 90 percent on billionaires and argues that from the proceeds, a country such as France could give each citizen a trust fund worth about Euro 120,000, as early as at an age of 25. Very high tax rates, he notes: Didn’t prevent fast growth in the 1950-80 period, so why the fuss.
Recently, in the largest and perhaps the most developed economy in the world, we saw a fairly popular candidate in the primaries, Elizabeth Warren, propose annual taxes of 2 percent on household fortunes over $50M, and 3 percent on billionaires (she was said to being advised by economists who in-turn worked with Piketty). The calculation being that such taxes (by the way very similar to Zakat in Islam) would affect 75,000 households, and yield revenues of $2.75 trillion over 10 years.
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The plutocratic US may be ideal terrain for a wealth tax
Latest polls (as recent as June 2020) suggest that most Americans even today support her idea floated by Warren during the democratic primaries! Paradoxically, the plutocratic US may be ideal terrain for a wealth tax.
Mark Stabile, another renowned economist and currently associated with Insead, points out that, first, rich Americans now have so much wealth that even if Elizabeth Warren’s idea captures just a small proportion, it could add up to a lot; second, Americans are taxed on their passports, so moving wealth abroad won’t save them (and Elizabeth Warren’s proposal contained to slap hefty exit taxes on anyone giving up citizenship); last, thanks to Swiss-Leaks and the Panama papers, governments have learnt a lot about the many ways to hide money.
Piketty claims that the advocates of justifying inequality will always come up with the usual justifications, but he believes that if ever, now is the redistributionists’ best chance. Well, quite a few economists would argue and perhaps rightly so that this time Thomas Piketty has gone a bit too far (left).
Many would say that France and French thinkers have always had a left leaning and Piketty is doing nothing new, but only stretching the boundaries to further extremes. So many times in the past there have been experimentations with nationalizing of capital or controlling opportunity or stifling free enterprise and entrepreneurship, and the result has always been that the nations choosing to do so have been left behind with their people denied the chance to progress and prosper.
Only a return to free enterprise, private sector freedom, and a shift to the market economy has been their salvation.
However, you need a Piketty to put the balance back in equilibrium every time capitalism gets into a self-destruct mode where wealth creation goes unchecked to an extent that the level of inequality becomes simply unacceptable or to check the temptation to take protection cum exclusion to unhealthy extremes in extraordinary times such as the world is facing today. And it is this very balance that we need to safeguard not only in the developed western economies, but also right here at home!
Dr Kamal Monnoo is a political analyst. He is honorary consul general of the Czech Republic in Punjab, Pakistan, and a member Board of Governors of Islamabad Policy Research Institute. He is the author of two books ‘A Study of WTO’, and ‘Economic Management in Pakistan.’ He can be reached at: kamal.monnoo@gmail.com. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.