Capital And Ideology by Thomas Piketty
Translated by Arthur Goldhammer
This is one of the books that everyone
interested in or fighting for equality must read. The title of the book may make you little
hesitant, particularly if you are like me, i.e. uninitiated in economics. But once I started reading I was in for a lot
of surprises, like a man reading a thriller.
Information, facts and figures tumble out of the book, in such
regularity that you wonder that collecting and collating such data and
presenting them in an era of ‘market forces dominating’ could not but be a rebellious
act. It is written in a simple, lucid
language that, as I said earlier, anyone could understand that facts, figures
and premises presented in the book.
The book makes a survey of at least three
centuries in the field of taxation, income data of many countries, particularly
France, United Kingdom, United States, Sweden, Germany, and limited data made available
on India, Russia and China. It makes
eye-opening observations on the trends of taxation, redistribution of money
through spending on social and developmental needs. It avoids the entrenched
Marxist and other non-marxist terminology and uses new and appropriate
terminology explained in simple language.
It shows that the challenge of redistribution of wealth can be met by
not necessarily with the state ownership of public assets (which is now
detested in public space because of its inefficiency, particularly in India)
but also by appropriate methods, one of them being progressive taxation. Each of the observation in this book is
supported by mass of data in respect of countries such as US, UK, India, China
Germany and Sweden.
Since I am new to the subject of the book,
I reiterate that I attempt only a review from the point of view of a common
reader, and not a specialist. The
author, Thomas Piketty in his final note says that (quote) “..Journalists and citizens all too often bow
to the expertise of economists, limited though it is, and hesitate to express
opinions about wages and profits, taxes and debts, trade and capital. But if the people are to be sovereign – as
democracy says they should be – these subjects are not optional. Their complexity is such that it is unjustifiable
to abandon them to a small caste of experts.
The contrary is true. Precisely
because they are so complex, only broad collective deliberation, based on
reason and on the past history and experience of every citizen, can lead to
progress toward resolving these issues.
Ultimately, this book has only
one goal: to enable citizens to reclaim possession of economic and historical
knowledge”.
This book starts with the statement that ‘Every human society must justify its
inequalities: unless reasons for them are found, the whole political and social
edifice stands in danger of collapse’.
The author goes on to explain that modern inequality is justified with
the themes of property, entrepreneurship and meritocracy. This inequality is modern because it is ‘the
result of freely chosen process in which everyone enjoys equal access to the
market and to property and automatically benefits from the wealth accumulated by
the wealthiest individuals, who are also most enterprising, deserving, and
useful. This is contrasted with the pre-modern
society which was based on rigid, arbitrary, and often despotic differences of
status’. But he points out that ‘Modern
inequality also exhibits a range of discriminatory practices based on the
status, race, and religion, practices pursued with a violence that the
meritocratic fairy tale utterly fails to acknowledge’.
‘What made economic development and human
progress possible was the struggle for equality and education and not the
sanctification of property, stability or inequality. The hyper-inegalitarian narrative that took
hold after 1980 was in part of a product of history, most notably the failure
of communism. But it was also the product of ignorance and of disciplinary
division in the academy. The excesses of
identity politics and fatalist resignation that plague us today are in large
part consequences of that narrative’s success’. This shows a mirror to us. It kindles spirits and gives us hope. The author does not state this from a
deterministic point of view, but by citing the examples from the history of
western countries, such as France United Kingdom, USA, Germany, Sweden that
followed a path of wealth redistribution through progressive taxation and
achieved certain level of tolerable inequality and access to basic needs for
its citizens. He also points out the
efforts made in India to lessen the inequality in the form of reservations etc.
The author points out that ‘the market and competition, profits and
wages, capital and debt, skilled and unskilled workers, natives and aliens, tax
havens and competitiveness – none of these things exist as such. All are social and historical constructs, which depend entirely on the legal, fiscal,
educational, and political systems that people choose to adopt and the conceptual definitions they choose
to work with. These choices are
shaped by each society’s conception of social justice and economic fairness and
by the relative political and ideological power of contending groups and
discourses. Importantly, this relative
power is not exclusively material; it is also intellectual and
ideological. In other words, ideas and ideologies count in history.’
It runs counter to the argument that inequality has a basis in “nature”. ‘Elites of many societies, in
all periods and climes, have sought to “naturalize” inequality’. ‘History
proves the opposite: inequality varies widely in time and space, in structure
as well as magnitude. Changes have occurred rapidly in ways that contemporaries
could not have imagined only a short while before they came about. Thus this
book throws away the pessimistic lethargy we seemed to have accepted and
encourages us to dream about a society beyond capitalism and communism which
are present in our ideological constructs. There are ways in this dark hour
that can lead us to more prosperous and egalitarian societies. Author shows this
from the historical experiences of many countries that lessened inequalities.
It is pointed out that ‘alternatives
always existed and always will. At every level of development, economic social,
and political systems can be structured in many different ways. A study of these different pathways and the
paths not taken, is the best antidote to both the conservatism of the elite and
the alibis of the would-be revolutionaries who argue that nothing can be done
until the conditions for revolution are ripe and thus they indefinitely defer
all thinking about the post-revolutionary future. What this usually means in practice is that
all power is granted to a hypertrophied state which may turn out to be as
dangerous as the quasi-sacred property relations that the revolution sought to
overthrow. Today, the post-communist
societies of Russia, China and to a certain extent Eastern Europe have become
hyper capitalism’s staunchest allies.
Author starts with the hypothesis that every ideology, no matter how extreme it may
seem in its defense of inequality, expresses a certain idea of social justice.
Though the book relies on facts, the author points out that facts are also
largely the products of institutions and hence facts are themselves constructs.
Author relies upon the data collected from World Inequality Database,
comparison of available sources including national accounts data, survey data
and fiscal and estate data, data on taxes levied in the countries for long
periods (sometimes centuries in respect of France, and United Kingdom etc).
Though progress has been made between
eighteenth century and now, there have also been phases of regression. The euro-american enlightenment and
Industrial Revolution coincided with extremely violent systems of property
ownership, slavery and colonialism, which attained historic proportions in
eighteenth, nineteenth and twentieth centuries.
Between 1914 and 1945 European powers succumbed to a phase of genocidal
self-destruction. In the 1950s and 1960s
colonial powers were obliged to decolonize.
With the collapse of Soviet empire, those fears about dangers of nuclear
annihilation dissipated. In the early 2000s a new regressive phase began as the
climate warmed and xenophobic identity politics gained a foothold against the
background of growing inequality after 1980-1990. IT is not necessary that this is the only way
progress could be made. Other paths could have been followed. Human progress is
not linear. It is wrong to assume that every change will always be for the best or
that free competition between states
and among economic actors will miraculously lead to universal social harmony.
As for the levels of inequality, take the
example of India, USA, Russia,
China, and Europe. The share of top decile (10 percent) in each of these regions stood at
around 25-35 percent in 1980 but by 2018 had risen to between 35-55 percent. It comes to our notice that top decile’s
share has risen much more rapidly in the US than in Europe and much more in
India than in China. This increase in
inequality has come at the expense of the bottom 50 percent of the distribution
whose share of total income stood at about 20-15 percent in 1980 but had fallen
to 15-20 percent in 2018 (and 10 percent in US). If we note the cumulative
income growth of each decile (10 percent) of the global income distribution,
people who belonged to neither the bottom 60 percent nor the top 10 percent – the global middle class did not benefit
much at all from global economic growth in this period. By contrast, the groups above and below this
global middle class benefited a great deal. Inequality decreased between the
bottom and middle of the income distribution and increased between the middle
and the top.
In the west, apologists like to divide the
rich into two categories. On the one
hand, there are Russian oligarchs, Middle Eastern Oil Sheiks, and billionaires
of various nationalities, be they Chinese Mexican, etc. Critics question whether such people
‘deserve’ their wealth, which the allegedly owe to close ties to the powers
that be in their countries. On the other, there are entrepreneurs, usually
European or American, of whom Silicon Valley innovators serve as a paradigmatic
example. Their contributions to global
prosperity are widely praised. If they
were properly rewarded for their efforts, some say they would be even richer
than they are. Society owes them a moral
debt, which it should perhaps repay in the form of tax breaks or political
influence. Such hyper-meritocratic,
Western centric justifications of inequality demonstrate the irrepressible
human need to make sense of social inequality, at times in ways that stretch
credulity.
This
quasi-beatification (meaning - granting of saint status by Vatican) of wealth
often ignores inconvenient facts. Would
Bill gates and his fellow techno-billionaires have been able to build their
businesses without the hundreds of billions of dollars of public money invested
in basic research over many decades? Would the quasi-monopolies they have built
by patenting public knowledge have reaped such enormous profits without the
active support of legal and tax codes?
All justifications of inequality deserve a
hearing, but they can be refuted by applying the lessons of history. The author shows how the current inequality regime,
which he calls neo-propertarian, bears traces of all the regimes that preceded
it. The
past justifications, if studied carefully, are no more incoherent than those of
the present. He shows that there was more inequality in the world during
the period between 1914 to 1945 when compared to the period 1945 to 1980 and
that inequality increased during 1980 to 2018.
He indicates inequality decreased in the periods during which there was
progressive taxation and that it did not affect the growth of economy,
particularly during 1945 to 1980. He
cites that top marginal income tax rate
averaged 81 percent in US and 89 percent in UK during the period
1932-1980. He argues that such high
rates remained for half a century and did not destroy capitalism in US.
Since
the end of 1980s this income tax rate has remained between 30-40 percent in US
and 40-45 percent in UK. It is shown that productivity growth in the US and UK
was higher in the period 1950-1990 than in the 1990-2020, thus casting serious doubt on the argument that reducing top marginal
tax rates spurs economic growth. Share of total national income going to
the bottom 50 percent fell from 20 percent in 1980 to 12 in 2018 in the US.
This goes against the prophesies of advocates of lower level taxation on super
rich in India.
Thomas
Piketty’s observation is that ‘the broadly social democratic redistributive
coalitions that arose in the mid-twentieth century were not just electoral or
institutional or party coalitions but also intellectual
and ideological.
The
author points out the nature of changes of the coalitions all around the world.
He shows that traditional left supporters (US democratic party including) came
from less educated and less wealthy voters during 1950-1970. But this started changing in 1960s and
1970s. During 1980-2000 voters of
Democratic party in US and Socialist alliance in France were better educated. This the author has brought out, is true of
many countries. The left right positions and their supporters have changed. He says that ‘no ideology can ever command
full and total assent: ideological conflict and disagreement are inherent in
the very notion of ideology.
As
for India, author says that we ‘did not attempt to study Indian society as
conflictual and evolving socio political process, nor did (we) explore sources
that might have allowed (us) to analyze the transformations of that
society. Instead, (we) sought to
describe a society they assumed from the outset to be eternal and
unchanging’. ‘Unsurprisingly, Indian
societies turn out to have been complex and ever changing; they bear little
resemblance to the frozen caste structures depicted by colonial administrators
or to the theoretical varna system one finds in the Manusmriti.
The
author cites Pudukkottai kingdom. ‘..a small energetic local tribe, the kallars,
who elsewhere were considered low caste and whom the British would later
classify as a criminal tribe, seized power and set itself up as a royal warrior
nobility in the seventeenth and eighteenth centuries. Kallars forced the local
Brahmins to swear allegiance to them, in exchange for which priests, temples
and brahmanical foundations were rewarded with tax-exempt land’. It was not until the ,British strengthened
their hold on Pudukkotai kingdom, …. that the Brahmins saw their influence
increase and their preeminence recognized.., that allowed them to impose ..
their norms’. This to me shows that more
than feudalism, it is British colonialism that reinforced their domination, not
necessarily in this case. This aspect
needs studies in other places. Already studies have revealed that it is
documentation regarding caste status by the British Indian government which rigidified
caste hierarchies. Prior to that, in feudal
order economic progress could alter the status of the castes and it has
happened in some castes in Tamil Nadu too.
He points out that ‘the British
initially approached the exercise (Census) through the prism of four varnas of
Manusmriti but soon realized that these categories were not very useful. The individuals surveyed identified instead
with the jatis. Colonial adminstrators
had no complete list of Jatis, and the people they were interviewing had
extremely diverse opinions about what jatis were most relevant and how they
should be grouped’. ‘In 1871 census enumerated some 3,208 castes; by 1881 the
number had increased to 19,044 distinct groups including subcastes. Average
population of each caste was less than 100,000 in the first census and 20,000
in the second. Often these castes were merely a small local occupational groups
present only in limited areas.
Here
is an interesting anecdote. In
1902 in the Maratha principality of Kolhapur, the King felt humiliated in front
of his own court when the local Brahmins banned him from a ritual reading of
the Vedas on the grounds that his Shudra background prohibited him from
participating. Furious, he immediately
ordered that 50 percent of the high posts in his administration be set aside
for non-brahmins. Perhaps this may be the case of beginning
of reservation of posts.
By
construction, reservations in the universities civil service and elected bodies
can only benefit a small minority of individuals within the most disadvantaged
social classes. To have achieved true significant reductions of Indian social
inequalities, it would have been necessary to invest massively in basic public
services for the most disadvantaged classes especially in the areas of
education, public health, sanitary infrastructure, and transportation. A high quality universal system of public
health and education accessible to all but especially to SC,ST, OBC would have
cost a lot and the taxes would have had
to be paid by the most advantaged groups. Perhaps this is the reason that why middle
classes, who dream of becoming upper classes, discourage discussion about
equality as a concept. They fear that
they have to forgo many benefits in favour of lower classes. And they would not
be admitted into upper classes if they talk about poor people or their claims.
There
were debates about land reforms in India in the 1950s and 1960s. There were two main counter arguments. One
was that caste was a key category for reducing inequality and it was difficult
to objectively measure its characteristics and the second that no one would
know how to end agrarian reform once it began, besides which there was no
certainty of reaching agreement about the way to define reservation quotas and
more generally, to allocate shares under a policy of redistribution. The author
says that this fear that any redistribution of wealth or income would open
Pandora’s box and that it would be better never to open it than to face the
problem of not being able to close it once opened.
The author says that this argument has
been used at one time or another to justify keeping property rights exactly as
they have always been. It was raised
during French Revolution, in the British House of Lords, and in the debates
over the abolition of slavery and the need to compensate slave owners.
Normally
we would assume that period that followed French Revolution brought to the fore
the inequalities in the system. But what
happened after the revolution is surprising. ‘Concentration of private
property, which was already extremely high in 1800-1810, only slightly lower on
the eve of revolution, steadily increased throughout the 19th
century and up to the eve of World War I.’
In France ‘wealthiest one percent at the top owned roughly 45% of
private property of all kinds in the period 1800-1810; by 1910, this figure has
risen to almost 55%. In Paris,
wealthiest one percent owned nearly 50% of all the property in 1810 and more
than 65% on the eve of World War I. The
Author wonders what would have happened if the two world wars had not happened
and whether if wars are consequences of such glaring inequality.
It
is brought to our notice that from 1950 to 2000 Sweden had largest share of
income as taxes and had highest social spending in Europe. In Germany parties that ruled between 1949 to
1966 accepted broad general frame work that included high taxes and social
spending compared with pre-World War I period. In USA income and inheritance
taxes were more steeply progressive than in Europe in the period 1932-1980.
The
author points out that in US that prior to 1980s the more educated voters
supported republican party. After 1990, the more educated voter supported
Democratic party. Like the left wing parties in France the
Democratic Party in US transitioned from Workers’ party to party of highly educated.
This is also true of Labour party in UK. This happened in France Germany,
Sweden also. In these countries
expansion of educational opportunity coincided with a reversal of the education
cleavage in the voting structure.
“The
history of all hitherto existing society is the history of lass struggles”,
wrote Karl Marx and Friedrich Engels in The Communist Manifesto. Author reformulates it thus “The history of
all hitherto existing societies is the history of the struggle of ideologies
and the quest for justice. In other words, ideas and ideologies count in history.
“Social position, as important as it is,
is not enough to forge a theory of just society, a theory of property, a theory
of borders, a theory of taxes, of education wages or democracy. Without precise answers to these complex
questions, without a clear strategy of political experimentation and social
learning, struggle does not know where to turn politically. Once power is
seized, this lacuna may well be filled by political-ideological constructs more
oppressive than those that were overthrown”.
“No
one will ever possess the absolute truth about just ownership, just borders,
just democracy, just taxes and education. The history of human societies can be
seen as a quest for justice. Progress is possible only through detailed
comparison of personal and historical experiences and the widest possible
deliberation.
He points out that “the case of India
turns out to be particularly instructive.
The Indian Union is an example of very large-scale democratic
federalism. More than that, it shows
how the state can use legal tools to overcome the heavy inegalitarian legacy of
an ancient society of castes made more rigid by the encounter with British
colonial power. He also brings out that
reservation quotes in India has not resolved all of India’s problems—far from
it. But such experiences are highly instructive for the rest of the world and
in particular for western democracies, which are also dealing with enormous
educational inequalities and are just beginning to deal with
multiconfessionalism which India has known for ten centuries.
He
also refers to the book ‘The Theft of History’ by Jack Goody which denounces
temptation to write history from a western centric point of view.
‘Ultimately,
this book has only one goal: to enable citizens to reclaim possession of
economic and historical knowledge’.
The
facts and data, and their interpretation are presented in the book on every
page that the only way to do justice to the book is to read it in full. There is no other way to know the facts and
to get surprised by them.
