L’ anti-capitaliste: Thomas Piketty is the rock star economist on a mission to redistribute wealth

French academic Thomas Piketty has been acclaimed as a rock-star-style economic guru on both sides of the Atlantic. Andrew Neather analyses the appeal of the man on a mission to redistribute wealth
Left-wing view: Thomas Piketty’s best-seller unpicks the case for capitalism (Picture: Ed Alcock / Eyevine)
1 May 2014

It’s the sort of reception that few academics can dream of. Last week Thomas Piketty, a 42-year-old economist at the Paris School of Economics, took the US TV chat shows by storm, hailed by New York magazine as a “rock-star economist”. And all this for his new book, a Left-wing, 700-page study titled Capital in the Twenty-First Century.

New York Times columnist and fellow economist Paul Krugman has described Piketty’s book as “magnificent”. The Financial Times’s Martin Wolf calls it “extraordinarily important”. Last night Piketty hit London, at an event sponsored by the Left-leaning Institute for Public Policy Research. Is Britain about to go Piketty-mad too?

Piketty’s book is in fact the latest in a series of post-financial crisis bestsellers lambasting capitalism. First out of the traps were epidemiologists Richard Wilkinson and Kate Pickett with The Spirit Level: Why More Equal Societies Almost Always Do Better (2009), a clarion call for Swedish-style social democracy over winner-takes-all capitalism. Columbia University’s Joseph Stiglitz has been scarcely lest prominent, with his 2012 book The Price of Inequality hitting the New York Times’s bestseller list.

And this side of the Atlantic, Cambridge economist Ha-Joon Chang has laid into the instability at the heart of the system with his 23 Things They Don’t Tell You About Capitalism (2011) and with more recent predictions of a new economic bubble.

The popularity of these broadly Left-wing economists is down to the financial crisis. Widespread public anger towards the bankers who caused the crash, as seen in the Occupy movement in the US and outside St Paul’s, shows little sign of abating.

“Piketty pushed at an open door: it didn’t take his book to delineate the battleground,” says conservative US economist and Hudson Institute scholar Irwin Stelzer.

More serious for conservatives, the target of popular anger is moving from bankers to the shape of the recovery now under way — and how equally its fruits are distributed. Only a small minority of Britons tell pollsters that they feel any benefit yet, while a growing percentage list “inequality” — rather than simply the economy or even unemployment — as a key concern. Food banks are proliferating. Yet in London a new super-wealthy elite bestride the city, driving property prices to dizzying highs. They do not appear to have been remotely troubled by the crisis.

One of the strengths of Piketty’s book is the depth and rigour of his historical analysis. Yet it is changes taking place now that make his concerns especially urgent. Globalisation and technological advances have stretched income distribution, increasing the gap between the wealthiest and even the middle classes, much less the poor. Technology has helped concentrate the fruits of most of the IT revolution’s productivity gains in the hands of corporations.

Meanwhile the growing asset-price bubble has concentrated wealth further. Again, the starkness of the shift is clearest in the capital. “Huge swathes of the country will now not ever be able to buy into being asset owners in London,” says Channel 4 News’s economics editor Faisal Islam.

And all this at a time when the defences erected in the 20th century against capitalism’s worst excesses — regulation, trade unions, the welfare state — have been weakened. The combined result is that whatever meritocratic case liberals might once have been able to make for capitalism — if you’re bright and you work hard, you’ll get ahead — looks increasingly threadbare.

“Pre-crisis, free-market economics won the political argument not just about growing the economy but on the creation of a fair, meritocratic society,” says Islam. “Looking at wealth rather than annual income makes this look rather less fair, and much more like simply defending the status quo.”

Yet while Left-wing economists may be riding high, will they change politics? Britain’s Conservative-led government is unshakably dedicated to free-market economics, whatever the nods to us being “all in it together”. Last year George Osborne cut the top rate of income tax from 50p to 45p; Boris Johnson and other Tories have demanded a further cut to 40p. And earlier this year David Cameron suggested that the Tories may pledge at the next election to raise the Inheritance Tax threshold to £1 million.

Piketty’s book has caught the attention of Ed Miliband’s team, and it chimes with Labour’s emphasis on inequality and the exclusion of the “squeezed middle” from the recovery. Labour has pledged to raise the top tax rate to 50p again, while today Miliband has announced that his party would bring in radical rent controls.

Piketty wants more radical measures than that. His big policy prescription is an 80 per cent tax — on wealth rather than income. A massive hike in inheritance tax to hit the wealthy would be another option, and not a project of Left-wingers alone: some US conservatives have championed taxing inheritance rather than income.

Yet in France under socialist President François Hollande, more modest measures have faltered. Hollande’s proposed 75 per cent tax on annual salaries exceeding €1 million has proved problematic. The mobility of capital today means that any such taxes could be hard to impose on just one nation: Piketty wants a global “confiscatory” tax, but given the international squabbles over measures such as banking reform, it’s hard to see it happening.

“Simplistic proposals like higher taxes can make the problem worse, both because of the economic damage from taxation and from the waste of resources by government,” warns Douglas McWilliams, chief executive of City forecasters the Centre for Economics and Business Research.

Perhaps Piketty’s predictions are unduly pessimistic. Gavin Kelly, of think-tank the Resolution Foundation, points to the falling levels of inequality in the Netherlands, an open Western economy. Piketty relies on very long-range forecasts — an area in which economists of all stripes have a poor record.

“Economists and social-science gurus with crystal balls can be read for fun but rarely for profit,” notes Stelzer drily. Piketty’s is a potentially apocalyptic view of the future. On that at least, we’d better hope he’s wrong.

Capital in the Twenty-First Century is published by Harvard University Press.

PICK OF THE PIKETTY: THEY KEY POINTS

Growth: Piketty’s central idea is that in an economy where the rate of return of capital is greater than the growth rate of the wider economy, the wealthy will get wealthier and the economy will become more unequal. This is capitalism’s natural tendency over time, he believes.

Wealth: in such an economy, wealth accumulates to the wealthy over the years to reinforce their position. Their kids get the internships, the houses and the top jobs, and then even more when they inherit. This is why wealth is more important than income - and is what we should tax most heavily.

Inequality: this process creates societies like ours, where the top 10 per cent own more than 50 per cent of the wealth and the top one per cent, more than 25 per cent of it. Capitalism systemically makes this inequality worse: Piketty believes it is ultimately unsustainable in a democracy.

The Kuznets curve: the theory of US economist Simon Kuznets that while industrialising capitalist economies tend to be unequal, more mature ones become more equal again (he was writing in the Fifties). But Piketty says the post-war period was an aberration: capitalism is reverting to unequal type.

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