Piketty's Road Map Towards EqualityBOCCONI STUDENTS ON THE ECONOMICS SEMINARS ORGANIZED BY IGIER. IN THE FOURTH ARTICLE OF THE SERIES, GAEL BLANCHARD REPORTS ON THE LATEST BOOK BY THOMAS PIKETTY AND HIS WORK ON GROWTH AND INEQUALITY
Leading international scholars present their cutting-edge research at Bocconi every year, in front of faculty and students. In order to make this work accessible to a larger audience, Bocconi Knowledge publishes the summaries of the scientific and policy seminars organized by the IGIER research center, written by the students participating in the IGIER-BIDSA Visiting Students Initiative
What do the rise of populism, the Occupy Wall Street Movement, the French Gilet Jaunes, and the Black Lives Matter movement have in common? According to Professor Thomas Piketty, (École des Hautes Études en Sciences Sociales - EHESS), the answer is simple: the rise of economic inequality. During the IGIER Policy Seminar of 25 November, Piketty presented his new book Capital and Ideology, which outlines a comprehensive history of inequality and focuses on the evolution of its ideological justifications as well its political causes and consequences. The book also contains a radical and detailed plan which could, according to the author, help create a fairer and more equal society.
Piketty argues that one key lesson from history is how difficult is the quest for equality. Even though “Égalité” was one of its driving forces, the French Revolution took many steps in the opposite direction, creating what Piketty calls the “sacralization” of private property. As a result of these developments France became an extremely unequal society. In the wake of World War I, the richest 1% of the population held as much as 70% of all the assets.
What is the deeper source of these contradictions? And what were their broader consequences? According to Piketty, the French revolution teaches us that what stood in the way of equality was 19th century liberal ideology and culture, which influenced not only France, but Europe as a whole. Liberalism created dilemmas that set strict boundaries on redistribution. For instance, colonial possessions such as Haiti were allowed independence in 1825 but were also obliged to incur a debt with France equivalent to 300% of their GDP. This was arranged to compensate the expropriated slave-owners. What is interesting is that progressive and liberal intellectuals such as Alexis de Tocqueville supported this policy, claiming that expropriation would be highly objectionable on the grounds of principles of justice. Why should the expropriated slave-owners be treated differently from those who could sell their slaves just a couple of months prior independence? Should former slave-owners be made to participate to the compensation of expropriated slave-owners? If so, which temporal limits should be set?
As a consequence of this intellectual and political environment, dominated by liberalism and less focused on economic justice, inequality rose spectacularly across Europe in the 19th century, even in countries, such as Sweden, that are considered to be very egalitarian today. This phenomenon came to a halt with the outburst of WWI, which led to massive redistribution through inflation and a strong increase in taxes, especially on the wealthy. This process of inflation and taxation continued after WWII, as countries tried to get rid of war debts. Piketty argues that wars were not the only factor here: political mobilization strongly favored the reduction of inequality, by forcing governments to tax the rich. Increasing inequality is thus not a necessary outcome but a choice, which can be changed through political and social participation.
The relationship between inequality and politics is also evident, Piketty says, once we notice the different experiences of different countries. For instance, in Sweden or Germany the income share held by richest 10% of the population is estimated to be around 25%, while, at the other extreme, in Brazil or South Africa this figure is close to 70%. In Piketty’s view, the causes of such heterogeneity can be traced back to historical and political factors: most countries in Africa and Latin America are still affected by the long-run consequences of colonial domination and 19th century strictures, with very few people, mostly descendants of colonizers, holding the majority of land and production factors.
The solutions proposed by Piketty to effectively address the problem of inequality can be summarized in three main points. First, it is fundamental to guarantee a fair and equitable educational system. Second, workers need to be empowered in the management of firms, for instance through the voting right systems present in Germany and Sweden. Third, the transmission of wealth needs to be limited through higher tax rates, in order to guarantee more equal access to property. These problems must be tackled collectively, especially in Europe, in order to limit tax elusion.
To conclude, inequality still is a serious problem but, according to Piketty, we should be optimistic. Despite a surge in the last four decades, the long-term trend of inequality is clearly decreasing, and feasible policies can support this process.
by Gael Blanchard