SANTIAGO – Few things excite intellectuals of the old Latin American left like a book on inequality written by a Frenchman. So, predictably, Thomas Piketty’s Capital in the Twenty-First Century has been a big hit. In the two months since the book’s publication in English, many an essay has been penned claiming that the Paris School of Economics professor’s grand oeuvre confirms earlier claims (usually the author’s own) about the perils of inequality in Latin America.
Piketty weaves a grand narrative about the dynamics of capital accumulation in a market economy. In his now-famous formulation, if the rate of return on capital is greater than the rate of growth of the economy, inherited wealth will grow more quickly than wage income, and the owners of capital will receive an increasing share of national output.
No one can deny that the distribution of income is scandalously unequal in Latin America. But it will come as a surprise to Piketty’s boosters (many of whom have yet to read his book) that his theory has little, if anything, to do with the measured dynamics of income distribution in the region.
Piketty’s theory concerns what economists call the functional distribution of income, or the split between providers of labor and owners of capital. But the maldistribution that causes so much unease in Latin America concerns the personal distribution of labor income – that is, the split among wage earners.