Capital & Ideology Part Three

The Great Transformation of the Twentieth Century

29 min readJul 4, 2020

Chapter 10: The Crisis of Ownership Societies

Collapse of inequality from 1914–1945 was a consequence of 3 elements:

Emergence of Socialism
Twilight of Colonialism
Exacerbation of Nationalism/Racialism.

American inequality is comparable in scale to European inequality from 1880–1914, but its structure is different. Highest incomes in Europe came almost entirely from property whereas the highest American incomes can sometimes be from high executive salaries.

“Contrary to what interested parties would have you believe, this in no way implies that this form of inequality is more ‘just’ or ‘meritocratic’ than the other. As noted earlier, access to higher education in the United States is highly unequal, despite official claims of meritocratic rewards. In Chapter 11 we will see that skyrocketing executive pay mainly reflects the absence of adequate countervailing power within firms and the decline of the moderating role of fiscal progressivity.”

When we discuss what the bottom 90 percent owns we are really discussing what the 50th to 90th percentile owns as the bottom 50 percent own nothing. Piketty calls this space between the 50th and 90th percentile the “patrimonial middle class.”

Several factors combined to reduce the concentration and influence of private wealth on society.

Necessity

“Between 1914 and 1950 it was the very concept of property that changed due to the effects of war and social and political conflict. Existing property rights, which had seemed unquestionably solid in 1914, had by 1950 given way to a more social and instrumental concept of property, according to which the purpose of productive capital was to further the cause of economic development, social justice, and/or national independence.”

Great Depression

“In general, faith in private capitalism was strongly shaken by the economic crisis of the 1930s and the ensuing cataclysms. The Great Depression, triggered by the Wall Street crash of 1929, struck rich countries with unprecedented force. By 1932, a quarter of the industrial labor force was unemployed in the United States, Germany, United Kingdom, and France. The traditional laissez-faire doctrine of government nonintervention in the economy, which prevailed in all countries in the nineteenth century and to a large extent until the early 1930s, was durably discredited. A shift in favor of interventionism took place almost everywhere.”

Expropriations

“Before World War I, the alliance between the French Republic and the Russian Empire found material embodiment in huge bond issues by the Russian government and many private companies (such as railroads). Newspaper campaigns (often subsidized by bribes from the Tsarist regime) persuaded wealthy French investors of the solidity of the Russian ally and the safety of Russian bonds. After the Bolshevik Revolution of 1917, the Soviets decided to repudiate all these debts, which in its eyes had only prolonged the existence of the Tsarist regime (which was not entirely false). The United Kingdom, United States, and France sent troops to northern Russia in 1918–1920 in the hope of quelling the revolution, to no avail.”

Nationalizations

“In France and other countries, this general suspicion of private capitalism was reinforced in 1945 by the fact that a substantial segment of the economic elite was suspected of collaboration with the Germans and of indecent profiteering during the Occupation (1940–1944). It was in this electrifying climate that the first wave of nationalizations took place during the Liberation: these involved mainly the banking sector, coal mines, and the automobile industry, including the famous ‘nationalization-sanction’ of Renault. Louis Renault, the owner of the automobile firm, was arrested as a collaborator in September 1944, and his factories were seized by the provisional government and nationalized in January 1945.”

Taxes

“Another type of sanction on capital was the national solidarity tax established by the law of August 15, 1945. This was a special progressive tax on both capital and gains made during the Occupation, a one-time tax whose extremely high rate was yet another shock to the fortunes of the individuals concerned.”

Progressive Taxation

“All the evidence available today suggests that this radical fiscal innovation was one of the main reasons why the decrease in total wealth led to a durable reduction of wealth inequality. It also explains why the reduction occurred gradually, as income and therefore the ability to save and replenish large fortunes was reduced by the increasing progressivity of the income tax and as the largest fortunes were whittled down over generations of bequests.”
“It is important to note the key role played by the United States and United Kingdom in developing large-scale progressive taxation on both income and estates. Recent work has shown that in both countries it was not only the theoretical top marginal rate that was raised to unprecedented levels in the period 1932–1980; in fact, the effective tax rates actually paid by the wealthiest groups reached new heights. From the 1930s to the 1960s, the total tax paid (in all forms, direct and indirect) by the top 0.1 and 0.01 percent of people with the highest incomes fluctuated between 50 and 80 percent of their pretax income, whereas the average for the population as a whole was 15–30 percent and, for the poorest 50 percent, between 10 and 20 percent.”

Public Sectors

“In Europe these postwar nationalizations played an important role, resulting in very large public sectors in many countries in the period 1950–1970… the power of shareholders on boards of directors was reduced, while the power of employee representatives was increased (along with the power of regional governments and other public stakeholders in certain cases). This experience is particularly interesting because it illustrates the gap between the market value of capital and its social value. The record shows that these policies led to lower stock-market valuations of firms in these countries (which continue to this day), without hurting business or economic growth — quite the opposite: greater worker involvement in the long-term strategies of German and Swedish firms seems rather to have increased their productivity.”

Real Estate Regulation

“Between 1914 and 1950 most European countries implemented a variety of policies for regulating real estate and financial markets, which had the effect of limiting the rights of property owners and reducing the market value of their assets. A case in point involves the development of rent control, which began during World War I. The scope of rent control expanded after World War II to the point where the real value of French rents in 1950 fell to one-fifth of what it had been in 1914, resulting in a comparable fall in the price of real estate. These policies also reflected a profound shift in attitude regarding the legitimacy of private property and of inequalities stemming from property relations. In a period of very high inflation, unknown before 1914, in which real wages often had not returned to prewar levels, it seemed unreasonable that landlords should be allowed to continue to enrich themselves on the backs of workers and others of modest means who had just returned from the front. It was in this climate that various countries began to regulate rents, increase tenant rights, and enact protections against eviction; leases were extended, rent was fixed over long periods, and tenants were given preferential options to purchase their apartments, in some cases at a discount. At their most ambitious, such measures were similar in spirit to agrarian reform (discussed previously in regard to Ireland and Spain), where the goal was to break up the largest parcels of land and facilitate their purchase by the people who actually farmed them. Broadly speaking, quite apart from any additional regulations, low real estate prices in the period 1950–1980 naturally facilitated access to ownership and spread wealth to new strata of society.”

These changes were accepted by the capitalist class of European nations out of necessity due to war or of fear from revolution.

“The Bolshevik Revolution also had a major impact. It forced capitalist elites to radically revise their positions on wealth redistribution and fiscal justice, especially in Europe. In France in the 1920s, politicians who had refused to vote for a 2 percent income tax in 1914 suddenly turned around and approved rates of 60 percent on the highest incomes. One thing that emerges clearly from debate on the bill is how afraid the deputies were of revolution at a time when general strikes threatened to engulf the country and a majority of delegates to the French Section of the Workers’ International (SFIO, or Socialist) Congress in Tours voted to support the Soviet Union and join the new Communist international bloc led by Moscow. Compared with the threat of widespread expropriation, a progressive tax suddenly seemed less frightening.”

Different countries had different reactions.

“Italy offers another example of a distinctive political trajectory. The fascist regime that came to power in 1921–1922 had little taste for progressive taxes. The rates applied to the highest incomes held steady at 20–30 percent throughout the interwar years before suddenly jumping up to more than 80 percent in 1945–1946, when the fascist regime gave way to the Republic of Italy and when both the Communist and Socialist Parties were quite popular. In 1924, Mussolini’s government actually decided to abolish the estate tax altogether, flying in the face of what was happening everywhere else; in 1931, it was reinstated, albeit at a very low rate of 10 percent. After World War II, the rates applied to the largest estates were immediately raised to 40–50 percent. This confirms the hypothesis that political mobilization (or its absence) was the main reason for changes in the tax structure and the structure of inequality.”

European countries that accumulated debt from World War 1 dealt with it via either inflation or exceptional taxes on capital. These exceptional taxes were not perfect but they were better than the alternative and ultimately worked.

“Compared with inflation, which shrinks everyone’s savings by the same proportion, rich and poor alike, the advantage of exceptional taxes on private property is that they afford much greater latitude for distributing the burden, partly because the rate can vary with the amount of wealth… and partly because they are generally applied to private assets of all types, including buildings, land, and professional and financial assets. In contrast, inflation is a regressive tax on wealth. Those who hold only cash or bank deposits are hit the hardest, whereas the wealthy, most of whose assets are in real estate, professional equipment, or financial portfolios largely escape the effects of rising prices, unless other measures such as rent controls and asset price controls are also implemented.”

Chapter 11: Social-Democratic Societies: Incomplete Equality

Marked by progressive taxation, nationalizations, public education, health/pension reforms, etc. These societies saw significant and at least somewhat equitable economic growth until the 1980s when they were unable to cope with the rampant inequality that became ubiquitous in that time.

Reasons:

Power sharing within firms was a relatively limited phenomenon. (Germany, Sweden)
Higher education was still largely unequal.
International trade and circulation of capital was largely unregulated.

“Social democracy did not succeed in building new transnational federal forms of shared sovereignty or social and fiscal justice. Today’s globalized economy is one in which regulation in all its forms has been undermined by free trade and free circulation of capital, instituted by agreements to which social democrats consented or even instigated. In any case they had no alternative to offer. The resulting heightened international competition has gravely endangered the social contract (and consent to taxation) on which the social-democratic states of the twentieth century were built.”

Two things missing from post war tax policy were international cooperation & a wealth tax.

Inequality was leveled by wars which destroyed much of the wealth that was owned by so few, but it was much more so leveled by political decisions.

“But a much more important reason for the reduction of inequality was a set of fiscal and social policies that made societies not only more egalitarian but also more prosperous than they had ever been before.”

“It may seem paradoxical that the United States was more egalitarian than Europe in terms of fiscal progressivity yet less ambitious with respect to its social state.”

This could have contributed to the more significant anti tax culture of the US as historically we got less for more.

“There are three ways of moving beyond private ownership of firms and shareholder omnipotence… public ownership uses state power to balance the power of private property. Social ownership seeks to share power and control of the means of production at the firm level. Temporary ownership allows private property to circulate and prevents the persistence of excessively large holdings. History suggests that these three ways of transcending private property are complementary. In other words, the key to transcending capitalism permanently is to rely on a mix of public ownership, social ownership, and temporary ownership.”
“Public ownership can be perfectly justifiable, and it has demonstrated its superiority over private ownership in many sectors, including transportation, health, and education, provided that governance is transparent and responsive to the needs of citizens and users. As for temporary ownership and the universal capital endowment, these may require the institution of some new form of progressive wealth tax, with which we have little experience to date. I will come back to this in greater detail later. Finally, social ownership and power sharing between employees and stockholders can also be organized in many ways, some of which have been practiced in a number of European countries since the 1950s.”

Union involvement and worker representation have positive effects besides wages and working conditions.

“The presence of workers on boards of directors has also helped to limit wage inequality and in particular to control the vertiginous growth of executive pay seen in some other countries. Specifically, in the 1980s and 1990s, executives in German, Swedish, and Danish firms had to make do with far less fabulous raises than their English and US counterparts, yet this did not harm their firms’ productivity or competitiveness — quite the contrary.”

Still the idea can be uniquely offensive to the propertied class.

“to change the rules linking ownership of capital to the power to decide what use to make of one’s property (a power taken to be absolute in classic definitions of property) and to create voting rights for people who own nothing — these are from a conceptual standpoint highly destabilizing actions.”

Cooperatives are good in some situations but systems as simple as one worker one vote can seem unjust when workers have invested vastly different amounts of effort and capital.

“There is no reason to restrict oneself to a choice between a pure cooperative model (one person, one vote) and a pure shareholder model (one share, one vote). The important point is that one needs to experiment with new mixed forms on a large scale.”

Working Hours

“The number of hours worked per job was approximately the same in Western Europe and the United States until the early 1970s (1900–2000 hours per year per job); however, a significant gap opened up in the 1980s. By the mid-2010s, the number of hours worked per job per year was 1,400–1,500 in Germany and France; 1,700 in the United Kingdom; and nearly 1,800 in the United States… in the absence of national legislation or collective bargaining for the entire work force, or at least the work force of an entire sector of the economy, it is historically extremely rare to see major reductions of working hours.”

I’ve talked about before how reduced working hours is rarely achieved on an individual basis even among the extremely narrow segment of people with the means to achieve it.

US Lower Classes Left Behind Since 1980

“How did the United States, which… was significantly more egalitarian than Europe in terms of income and wealth distribution, become the most inegalitarian country in the developed world after 1980 — to the point where the very foundations of its previous success are now in danger?”
“The most striking phenomenon here was not the rise of the one percent but the fall of the bottom 50 percent. Again, this was in no way inevitable: the increase of the top centile share could have come at the expense of those just below them, the people in the ninetieth to ninety-ninth percentile or of the middle 40 percent (fiftieth to ninetieth percentile). But the fact is that it came almost entirely at the expense of the bottom 50 percent. It is particularly depressing to discover that the disposable income of the bottom 50 percent has stagnated almost completely in the United States since the late 1960s. Before taxes and transfers, the average income of the bottom 50 percent averaged about $15,000 per adult per year in the late 1960s, and it is still at roughly the same level in the late 2010s (in 2015 dollars), a half-century later… average income is not very different after taxes and transfers, which means that the taxes paid by the bottom 50 percent (notably in the form of indirect taxes) are roughly equal to the cash transfers they receive (including food stamps).

Redistribution is essential but it is delusional to believe the primary distribution of income is justified let alone sacrosanct. Changes to “predistribution” policies (regarding the legal fiscal and educational system) are all required.

Minimum Wages

“The minimum wage and its evolution also play a central role in explaining variations in wage inequality across time and space. In the 1950s and 1960s, the United States had by far the highest minimum wage in the world. In 1968–1970 the federal minimum wage was more than $10 an hour in today’s dollars. Since 1980, however, the failure to raise the minimum wage regularly gradually eroded its value in real terms: in 2019 it was only $7.20, representing a 30 percent decline in purchasing power over half a century — remarkable for a country at peace and growing economically. This reversal attests to the magnitude of the political-ideological changes that took place in the United States since the 1970s and 1980s.”

Minimum wages on their own aren’t a complete indicator of the status of labor as unionization can replace the need for minimum wages.

Marginal Tax Rates & Executive Pay

“In the 1950s and 1960s, the top executives of major British and American firms had little interest in fighting for huge raises, and other actors were reluctant to grant them because 80–90 percent of any raise would have gone directly to the government. In the 1980s, however, the nature of the game changed completely. The evidence suggests that executives began to devote considerable effort to persuading others that enormous raises were warranted, which was not always difficult to do, since it is hard to measure how much any individual executive contributes to the firm’s success. What is more, compensation committees were often constituted in a rather incestuous fashion. This also explains why it is so difficult to find any statistically significant correlation between executive pay and firm performance.”

Access to education is also extremely unequal, but that’s so obvious at this point it would feel like stat padding my word count. The point is access to education and as well as the quality of that education is highly unequal, and it gets more unequal the higher you go. Piketty also suggests that financial contributions to universities may be an unfair factor in university admissions which was vindicated before the book even came out in English.

In both Europe and the US economic growth was superior in the years from 1950–1990 when compared to the eras before and after it.

“The strongly progressive tax system that was put in place in the twentieth century helped end the extreme concentration of wealth and income observed in the late nineteenth and early twentieth centuries, and this reduction of inequality opened the way to stronger growth than ever before. At a minimum, this should convince everyone that the very high level of inequality that existed before World War I was in no way necessary for growth, as much of the elite claimed at the time. Everyone should also agree that the conservative Reagan revolution of the 1980s was a failure: growth in the United States fell by half, and the notion that it would have fallen even more in the absence of conservative reforms is not very plausible.”

I think in a previous review Ha Joon Chang said Neoliberalism promises growth at the expense of equality and achieves neither.

Education Investment over time.

“At a more general level, the period 1950–1990 saw an exceptionally high level of educational investment in all the rich countries, much higher than in previous periods, which may help to explain the unusually high level of growth. By contrast, the stagnation of educational investment in the period 1990–2020, even as more and more students headed to university, is consistent with slower productivity growth”

Liberalization of Capital Flows

“When the world moved in the 1980s to free circulation of goods and capital on a global scale under the influence of the United States and Europe, it did so without any fiscal or social objectives in mind, as if globalization could do without fiscal revenues, educational investments, or social and environmental rules.

Agrarian Reform

“An important limitation of agrarian reform (and, more broadly, of exceptional wealth taxes) is that it offers only a temporary solution to the issue of concentration of wealth and of economic and political power. That is why a permanent and annual progressive wealth tax is necessary. Although the tax rates on the highest concentrations of wealth are of course lower in the case of a permanent tax than an exceptional one, they can still be high enough to shift ownership of large amounts of wealth and prevent it from becoming reconcentrated. If such a tax were used to finance a universal capital endowment for every young adult, it would be tantamount to a permanent and continuous agrarian reform but applied to all private capital and not just farmland.”

Present tax policy is not some naturally occurring internally coherent system handed down by some perfectly calculated authority. “It is the fruit of particular historical processes and specific political-ideological mobilizations (or the absence thereof)” Piketty seems to think the absence of a wealth tax is a product of historical happenstance (party priorities and policy coin flips) rather than any actual pragmatic concern of viability.

Wealth taxes on the largest fortunes have been around for over a century in Europe although most were wiped out due to tax competition. Norway and Switzerland are the exceptions.

“Surveys on this subject show that most people would prefer a mixed tax system based on both income and net wealth (including both real estate and financial assets, which respondents logically regard as equivalent in terms of fiscal justice). The only possible (but relatively nihilistic and factually false) justification for not taking financial assets and liabilities into account is that people with financial assets have so many opportunities for tax avoidance that there is no choice but to exempt them entirely from the wealth tax.”

(Anecdotally this is the most common and also least compelling argument I ever hear regarding a wealth tax.)

“Social democracy, for all its successes, has suffered from a number of intellectual and institutional shortcomings, especially with respect to social ownership, equal access to education, transcendence of the nation-state, and progressive taxation of wealth.”

“There is a widespread perception that pitiless tax competition justifies less progressivity, even if it contributes to greater inequality. In reality, refusing to have a rational debate about a progressive wealth tax and pretending that it is wholly impossible to make the largest fortunes contribute to the common good and that the lower and middle classes have no choice but to pay in their place strike me as a very dangerous political choice.”

Chapter 12: Communist & Postcommunist Societies

Piketty asserts that Communist Societies were ultimately counterproductive when it came to challenging proprietarian ideology.

“The dramatic failure of the Communist experiment in the Soviet Union (1917–1991) was one of the most potent factors contributing to the return of economic liberalism since 1980–1990 and to the development of new forms of sacralization of private property.”

“How would the new relations of production and property be organized? What would be done about small production units and about the commercial, transport, and agricultural sectors? How would decisions be made, and how would wealth be distributed by the gigantic state planning apparatus?”
“It is easy to proclaim the abolition of private property and bourgeois democracy but more complex (as well as more interesting) to draw up detailed blueprints for an alternative political, social, and economic system… As for Lenin, we know that shortly before his death in 1924 he favored the New Economic Policy (NEP), which envisioned an extended period of reliance on a regulated market economy and private property (even if the modes of regulation remained largely undefined). Joseph Stalin, wary of anything that might slow the process of industrialization, chose to avoid these complexities: in 1928 he ended the NEP and ordered immediate collectivization of agriculture and full state ownership of the means of production”

Soviets maintained control of the country through a combination of repression and ideological justification based on the recent memory of life before the revolution.

“With the Tsarist government as point of comparison, the Soviet regime had no difficulty portraying its project as one that held out greater promise for the future in terms of both equality and modernization. And in spite of repression, ultra-centralization, and state appropriation of all property, public investment in the period 1920–1950 clearly did lead to rapid modernization that brought the Soviet Union closer to Western European levels, especially in the areas of infrastructure, transportation, education (and literacy), science, and public health. Within a few decades the Soviet regime had considerably reduced the concentration of income and wealth while raising the standard of living, at least until the 1950s.”
“The top decile’s share of national income remained fairly low throughout the Soviet period, around 25 percent from the 1920s to the 1980s, compared with 45–50 percent under the Tsars.”

One of the reasons for low inequality was the absence of capital income which constitutes a significant portion of the top incomes in the west. Inequality was not limited to income though as certain benefits were granted to those of higher status.

Soviets ideologically justified their authority through their international opposition to nazisim, racism, and colonialism. The US was associated with racial segregation within its borders, support for apartheid outside its borders.

“In the period 1950–1980, when the patriarchal ideology of the housewife reigned supreme in the capitalist countries, communist regimes took the lead in advocating equality between men and women, particularly in the workplace. Support was offered in the form of public day care and preschools as well as contraception and family planning.”

Soviets could also boast of superior gender equality and a higher proportion of women in the government, but Piketty asserts that this didn’t have any real implications on the reality of who holds power. The Soviet’s moral currency dwindled as the west was able to make social progress.

Pandora’s Box Syndrome: Private ownership was seen as a Pandora’s box in the USSR similarly to how progressive economic reform is seen as a Road to Serfdom in the US. Relatively small and beneficial changes are seen as sowing the seeds of destruction to each respective society.

“When a good or service is reasonably homogeneous… there is little need for competition among the units producing that good or service indeed, competition may well prove harmful in such circumstances. By contrast, in sectors where there is a legitimate diversity of individual aspirations and preferences — for instance, in the supply of clothing or food — then decentralization, competition, and regulated private ownership of the means of production are justified.”

Post Communist Russia

Postcommunist Russia is difficult to write about as their finances are deliberately opaque but suffice to say inequality has increased dramatically since the fall of the Soviet Union.

“In less than ten years, from 1990 to 2000, Postcommunist Russia went from being a country that had reduced monetary inequality to one of the lowest levels ever observed to being one of the most inegalitarian countries in the world.”

“Western advisers working in Moscow at the time were convinced that the Soviet Union had sinned by an excess of egalitarianism; hence, any possible increase of inequality in the wake of privatization and shock therapy should be considered a relatively minor worry.”

“When planning was abandoned and firms were privatized, however, progressive taxation could have played a role similar to the role it played in the capitalist countries in the twentieth century. The fact that this did not happen demonstrates once again how little countries share experiences and learn from one another.”

I’m having some real trouble believing their issue with progressive taxation was that they didn’t understand it. Perhaps they did understood it perfectly, but realized it went against their own interest. The overthrow of the Soviet Union was not accomplished by its people nor on their behalf. Piketty explains it better when he says that it may have “turned out differently had the balance of power and capacity for mobilization of the various contending groups been different.”

“These episodes also demonstrate the importance of crises in the history of inequality regimes. Depending on what ideas are available when a switch point arrives, a regime’s direction may turn one way or another in response to the mobilizing capacities of the various groups and discourses in contention.”

China

“In 1978 the country began experimenting with a novel type of political and economic regime, which rests on two pillars: a leading role for the Chinese Communist Party (CCP), which has been maintained and even reinforced in recent years, and the development of a mixed economy based on a novel balance between private and public property, which has proved to be durable.”

China as a mixed economy is not unlike the temporary economies of postwar western countries.

“70 percent of all property is now private, but it is not completely capitalist either because public property still accounts for a little more than 30 percent of the total — a minority share but still substantial. Because the Chinese government, led by the CCP, owns a third of all there is to own in the country, its scope for economic intervention is large: it can decide where to invest, create jobs, and launch regional development programs.”

“If we compare China to the other Asian giant, India, it is clear that since the early 1980s China has been both more efficient in terms of growth and more egalitarian in terms of income distribution.”

Higher Chinese tax revenues have financed superior infrastructure education and healthcare. That being said Modern Chinese inequality is not a far cry from modern American levels, and data on inequality is as opaque as it is in Russia.

“There is no Chinese inheritance tax and therefore no data of any kind concerning inheritances, which greatly complicates the study of wealth concentration. It is truly paradoxical that a country led by a communist party, which proclaims its adherence to ‘socialism with Chinese characteristics,’ could make such a choice.”
“Xi Jinping’s writings on socialism ignores progressive taxation, and power sharing within firms in favor of a ‘visible hand’ of the government to counterbalance the abuses of the ‘invisible hand’ of the market. He also emphasizes the new silk road which ‘would at last put an end to Europe’s mad colonial ambitions and the damaging unequal treaties’ imposed on China and other countries.”

Geopolitically, a Eurasian power bloc with China at its center would ultimately relegate America to its proper place on the world periphery.

“The Chinese regime survives by capitalizing on the weaknesses of other models. Having learned from the failures of the Soviet and Maoist regimes, the Chinese have no intention of repeating the errors of the Western parliamentary democracies.”

Chinese media is quick to justify itself on moral grounds not unlike the Soviet Union.

“The paper also emphasizes the respect with which Chinese leaders treat other world leaders, especially those of the African nations that the president of the United States, the supposed ‘leader of the free world,’ has called shithole countries.”
“Among the criticisms traditionally leveled at Western institutions by communist regimes such as the Russian and Chinese, two warrant particular attention. First, equal political rights are illusory when the news media are captured by the power of money, which gives the wealthy control over minds and political ideology and thus tends to perpetuate inequality. The second criticism is closely related to the first: political equality remains purely theoretical if the way political parties are financed allows the wealthy to influence political platforms and policies.”
“Instead of relying on a few minutes of the voters’ superficial attention every four or five years, as in the West, China’s party-managed democracy is supposed to be guided by a significant minority of the population, made up of party members (about 10 percent of the adult population) who are fully involved and informed and who deliberate collectively and in depth for the good of the country as a whole.”

The CPC has a higher active participation rate among the working class than the equivalent in other countries but Piketty asserts that this indicates nothing about who actually holds power within the party.

“China’s party-managed democracy has yet to demonstrate its superiority over Western electoral democracy, owing in part to its flagrant lack of transparency. The very sharp increase of inequality in China and the extreme opacity of Chinese data also raise serious doubts about the degree to which the lower classes are actually involved in the supposedly representative deliberative process that the CCP claims to embody. Nevertheless, China’s many criticisms of Western political systems should be taken seriously. The power of money over the media and parties and the structural difficulty of dealing with the problems of borders and property rights are important issues, as is the fact that parliamentary institutions are increasingly dominated by closed circles of insiders in both the European Union and the United States. What is more, traditional representative mechanisms need to be complemented by arrangements allowing for true deliberation and participation rather than just casting a ballot every four or five years.”

East Europe

Citizens of Post Communist East European nations have a sense of “permanent economic subordination” since the fall of communism.

“Inequality in Eastern Europe has not grown as much as in Russia or the United States largely because much of the substantial return on East European capital goes abroad. Basically, it was only during the communist era that Eastern Europe was not owned by Western investors.”

“Wages have not increased as rapidly as hoped, in part because of the bargaining power of Western investors, who can threaten to withdraw their capital if profits are too low; this has helped to limit wage hikes.”

“The implicit assumption is that the ‘market’ and ‘free competition’ automatically yield a just distribution of wealth, and transfers that depart from this ‘natural’ equilibrium are seen as an act of generosity on the part of the winners (on this view, only transfers of public funds count as ‘transfers,’ whereas flows of private profits are considered part of the ‘natural’ functioning of the system).”
“As Karl Polanyi observed in The Great Transformation, markets are always socially and politically embedded, and their sacralization only exacerbates nationalistic and identitarian tensions.”

Chapter 13: Hypercapitalism: Between Modernity and Archaism

The countries with the highest inequalities today are frequently the countries with the most racialized history.

“This is the case in South Africa, which ended apartheid in the early 1990s, and in Brazil, which was the last country to abolish slavery at the end of the nineteenth century. The racial dimension and history of slavery may also help to explain why the United States is more unequal than Europe and has had greater difficulty building social-democratic institutions.”

Middle East Political and Economic Instability are interconnected.

“The 1991 military intervention, whose purpose was to restore Kuwait’s oil to its emirs and to promote Western interests, coincided with the collapse of the Soviet Union, which facilitated Western intervention (now that there was no longer a rival superpower to contend with). These events marked the beginning of the new political ideological era of hypercapitalism. They also illustrate the fragility of the compromise that was struck at the time. A few decades later, the Middle Eastern inequality regime epitomizes the explosive mixture of archaism, hyper-financialized modernity, and collective irrationality typical of recent times. It bears traces of the logic of colonialism and militarism; it contains reserves of petroleum that would be better kept in the ground to prevent global warming; and its wealth is protected by the extremely sophisticated services of international lawyers and financers, who find ways to put it beyond the reach of covetous have-nots.”

These countries are also some of the most known for their use of tax havens.

Climate Change

“It is clear that global warming cannot be stopped or at least attenuated without substantial changes in the way people live. For such changes to be acceptable to the majority, the effort demanded must be apportioned as equitably as possible. The need for fair apportionment of the effort is all the more obvious because the rich are responsible for a disproportionate share of greenhouse gas emissions while the poor will suffer the worst consequences of climate change.”

“Carbon emissions are not solely the responsibility of the countries that produce hydrocarbons or the countries that host factories generating significant emissions. Consumers in the importing countries, particularly the wealthiest of them, bear part of the responsibility as well.”

“This extremely high concentration of the highest emitters in the United States is a result of both higher income inequality and a way of life that is particularly energy intensive. Of course, these results alone will not persuade people around the world to agree on who should make the greatest effort. In the abstract, given the facts about who is to blame, it would not be illogical for the United States to compensate the rest of the world for the damage it has done to global well-being, which is potentially considerable (bearing in mind that global warming may eventually lead to a loss of 5–20 percent of global GDP, if not more). In practice, it is quite unlikely that the United States would spontaneously undertake to do this.”

Carbon taxes should be progressive and revenues should fund support for their poor and ecological transition programs. As we saw in France austerity dressed up as environmentalism will fool no one.

“Only a small part (less than a fifth) of the additional carbon tax revenues were to be applied to the ecological transition and measures of compensation, with the rest going to finance other priorities, including major tax cuts for the social groups with the highest income and greatest wealth.”

Opacity

The rise of big data and modern information technology has coincided with the disappearance of public statistics on wealth. It seems like people who have the power to make these decisions aren’t interested in sharing the quantity and origins of their wealth.

“The failure in some cases reflects a veritable surrender by governments, fiscal authorities, and statistical agencies; more than that, it reflects a political-ideological refusal to take the issue of inequality seriously, particularly when it comes to wealth inequality.”

Piketty wants a “Public Financial Register” ideally on a continental basis. (He seems to expect less.)

“Extreme inequality recurs again and again; to deal with it, societies need institutions capable of periodically redefining and redistributing property rights. The refusal to do so in as transparent and peaceful a manner as possible only increases the likelihood of more violent but less effective remedies.”

Those in power are quick to recall the failures of communism abroad as they ignore the success of progressive taxation at home.

Gender

Inequality with regard to gender has actually been on the decline… It’s just an extremely gradual decline. Quotas are a potential solution.

“If it continues in the coming decades at the same rate as in the period 1995–2015, women will account for half of the top income centile in 2102.”

There is also a need to rethink how working time is organized and how professional life relates to family and personal life. Many men who earn the highest pay rarely see their children, family , friends, or the outside world (even when they have the means to live otherwise, in contrast to less well-paid workers). Solving the problem by giving women incentives to live similar lives is not necessarily the best choice. Research has shown that the professions in which male-female equality has progressed the most are those in which work is organized so as to give individuals more control over their schedules”
“We have seen that economic development has historically always been closely associated with state building. The constitution of a legitimate government capable of mobilizing and allocating major resources while retaining the conﬁdence of the majority is the fundamental prerequisite of successful development and the hardest to achieve. In this connection, it is striking to discover that the poorest states in the world became poorer in the period 1970–2000; things improved very slightly between 2000 and 2020 but did not return to their initial level (which was already very low).”

This pauperization can be traced to decisions made outside of these countries.

“All the points previously made about the lack of economic and ﬁnancial transparency in the rich countries have even more serious consequences in the poor countries. In particular, the regime of heightened ﬁscal competition and free capital ﬂows without political coordination or automatic exchange of bank information — a regime promoted by the United States and Europe since the 1980s — has proved extremely undesirable and damaging for poor countries, especially in Africa. According to available estimates, assets held in tax havens represent at least 30 percent of total African ﬁnancial assets — three times higher than in Europe.”

“Today’s neo-proprietarian ideology relies on grand narratives and solid institutions, including the story of communism’s failure, the ‘Pandorian’ refusal to redistribute wealth, and the free circulation of capital without regulation, information sharing, or a common tax system.”

Meritocracy

If the rich are deserving of their status so are the poor. Meritocracy has been used to justify inequality for a long time but became much more important in the era of higher education.

“The issue of educational injustice and meritocratic hypocrisy has only gained in importance since the 1960s. Access to higher education has expanded signiﬁcantly but remains highly stratiﬁed and inegalitarian, and there has been no serious investigation of the resources actually allocated to diﬀerent groups of students or to pedagogical reforms that might provide more authentic equality of access. In the United States, France, and most other countries, the praise heaped on the meritocratic model is rarely based on close examination of the facts. The goal is usually to justify existing inequalities with no consideration of the sometimes glaring failures of the existing system or of the fact that lower- and middle-class students do not have access to the same resources or courses as the children of the upper classes.”

Billionaires

“Today’s meritocratic ideology gloriﬁes entrepreneurs and billionaires. At times this gloriﬁcation seems to know no bounds. Some people seem to believe that Bill Gates, Jeﬀ Bezos, and Mark Zuckerberg single-handedly invented computers, books, and friends. One can get the impression that they can never be rich enough and that the humble people of the earth can never thank them enough for all the beneﬁts they have brought. To defend them, sharp lines are drawn between the wicked Russian oligarchs and the nice entrepreneurs from Seattle and Silicon Valley , while all criticism is forgotten: their quasi-monopolistic behavior is ignored as are the legal and tax breaks they are granted and the public resources they appropriate.”
“People are increasingly aware that the inﬂuence of billionaires has grown to proportions that are worrisome for democratic institutions, which are also threatened by the rise of inequality.”
“For the billionaire or even the less well-endowed donor, it may be pleasant to be in a position to set a country’s priorities in health care and education. Still, nothing in the history of the rich countries suggests that this is the best method of development. Another point about the philanthropic illusion is that philanthropy is neither participatory nor democratic. In practice, giving is extremely concentrated among the very wealthy , who often derive signiﬁcant tax advantages from their gifts. In other words, the lower and middle classes subsidize through their taxes the philanthropic preferences of the wealthy — a novel form of conﬁscation of public goods and control derived from wealth.”

Ok we’re officially more than halfway done. I think he’s starting to get to the point now.

Part Four