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 19^th 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.

                                                                              V. Rajagopal