The Heirs of Inequality

ROME – It has long been known that spurts of rapid economic growth can increase inequality: China and India are the latest examples. But might slow growth and rising inequality – the two most salient characteristics of developed economies nowadays – also be connected?

That is the intriguing hypothesis of a recent study by the French economist Thomas Piketty of the Paris School of Economics. Piketty has done some of the most important work on inequality in recent years.

Taking advantage of the French bureaucracy’s precision, Piketty was able to reconstruct the French national accounts over nearly two centuries. The economy from 1820 until World War I – a kind of second ancien regime – had two striking features: slow growth – about 1% a year – and an outsize share of inherited wealth, which accounted for roughly 20-25% of GDP.

The link between low growth and the importance of inheritance, Piketty argues, was not coincidental: with inherited wealth yielding 2-3% a year and new investment only 1%, social mobility was extremely limited and stratification was encouraged.