By offering a comprehensive history of "inequality regimes" around the world, French economist Thomas Piketty offers a deeply informative and rewarding overview of one of today's most pressing economic issues. But his own historical narrative suggests that his vision of global participatory socialism is a non-starter.
NEW YORK – French economist Thomas Piketty’s latest doorstop tome tries to fuse two distinct research efforts. The first is a history of inequality since around 1700, with occasional excursions into earlier periods. Upon reaching the nineteenth century and the industrial era, the analysis deepens and grows more detailed, taking us up to the present. Unlike Piketty’s previous opus, Capital in the Twenty-First Century, which focused on the United States and just a few European countries, Capital and Ideology expands the scope to cover India, China, Brazil, and much of the postcolonial world.
The book’s second major objective is to provide a blueprint for “participatory socialism” at the global level. Piketty envisions a world in which the only inequality is “just inequality.” The latter includes income and wealth differences that “are the result of different aspirations and distinct life choices or permit improvement of the standard of living and expansion of the opportunities available to the disadvantaged.” In other words, permissible inequality should be determined on a Rawlsian basis, which allows for differences of position so long as they benefit the least well off in society.
These two overarching themes and associated research programs are not organically connected. Nothing resembling Piketty’s vision for global participatory socialism has developed during the 250-year history of “inequality regimes” that constitutes the bulk of the book. Not even the heyday of Western social democracy (1930-80) came close to what Piketty has in mind. In today’s political climate, moving our hyper-capitalist, nationalist, and identitarian societies toward Piketty’s ideal would require nothing short of a global revolution.
The Evolution of Inequality
Although Piketty’s opponents often glibly dismiss him as a closet Marxist, he is no economic or technological determinist. “Given an economy and a set of productive forces in a certain state of development,” he writes, “a range of possible ideological, political, and inequality regimes always exists.” He thus concludes that, “inequality is neither economic nor technological; it is ideological and political.” Political entrepreneurship, historical contingencies, and ideological climates all play a role in shaping economic institutions and structures.
According to Piketty, the political processes that reduced inequality in the past also helped to create what he considers “our most precious institutions – those that have made human progress a reality, including universal suffrage, free and compulsory public schools, universal health insurance, and progressive taxation.”
Piketty distinguishes between six categories of social organization: trifunctional (as in the pre-modern structure of clergy, warriors, and commoners), slaveist, colonialist, proprietarian, social-democratic, and communist. These categories are interpreted flexibly. For example, between 1527 and 1865, Sweden actually had four classes (nobility, clergy, urban bourgeoisie, and landowning peasantry) and colonial India had – or was seen by British colonialists to have – four main castes: Brahmins, Kshatriyas, Vaishyas, and Shudras. Similarly, “social democracy” comprises not just European welfare states but also the US in the years between the New Deal and President Ronald Reagan’s election.
The book provides a detailed account of how premodern trifunctional societies with weak, decentralized states evolved into today’s extremely inegalitarian ownership (proprietarian) societies with stronger, centralized states. The description of the period from around 1800 until World War I benefits greatly from its inclusion of slave and colonial societies, particularly its discussion of the compensation that former European slave owners received when that deplorable institution was abolished. Here, Piketty is absolutely correct that “it is impossible to understand the structure of inequality today without taking into account the heavy inegalitarian legacy of slavery and colonialism.”
In the ideal or typical proprietarian society, private individuals (or dynasties) can exercise and exploit perpetual wealth ownership. A centralized state, which funds itself through taxes approved by the citizenry (whose status is based on wealth) monopolizes the once-royal powers of security, justice, and the legitimate use of force, and guarantees full, complete, inviolable, and permanent property rights.
In Piketty’s account, ownership societies suffered a threefold crisis in the 1914-45 period. Increasing inequality during the proprietarian era (1800-1914) gave rise to internal challenges. The first were the social-democratic and communist counter-discourses, which had already started in the early nineteenth century. Then came the emergence of social-democratic and communist counter-regimes in the late nineteenth and early twentieth centuries. Piketty believes that “the powerful social and political tensions stemming from rising inequality contributed to the rise of nationalism and therefore the likelihood of war.” But he offers little evidence for this conjecture. In fact, many countries – including the US and the United Kingdom – actually introduced steep progressive income and inheritance taxes during this period.
In any case, the two decades of decolonization after World War II had long been preceded by critiques of and attacks on the colonial order, not to mention the growth of national independence movements in the colonies themselves. Like the two world wars and the rejection of free trade and the free movement of capital, nationalist and identitarian (race- and ethnicity-based) politics directly challenged the model of the classic ownership societies.
Les Trente Glorieuses
During the 1950-80 period, most proprietarian societies continued to follow the more egalitarian development paths initiated during the previous era. Inequality declined almost everywhere, and European income and wealth inequality, which had been significantly greater than that of the US until 1914, fell below US levels. This trend owed much to progressive income taxes and significant growth in public spending (and tax revenues) as a share of GDP, which was enabled by buoyant economic growth – including robust real (inflation-adjusted) wage gains.
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Public spending on health, education, pensions, and welfare rose dramatically during this period. Between 1932 and 1980, the top marginal income tax rate averaged 81% in the US, 89% in the UK, 58% in Germany, and 60% in France. Here, Piketty asserts a causal connection between the period’s extraordinary economic performance and the attendant reductions in inequality: “the economic and social success of the capitalist countries in the twentieth century depended on ambitious and largely successful programs to reduce inequality, and in particular on steeply progressive taxes.”
But, again, there is little evidence to back the assertion. The only thing we can say with any degree of confidence is that material reductions in inequality and steep progressive income taxes were compatible with these countries’ economic and social success. Whether they were necessary to that success remains an open question. After all, one can point to many other drivers of growth in the advanced economies during the 1950-80 period. The world was recovering from the destruction and dislocation of two world wars, and from the unprecedented output and employment losses of the Great Depression. Following more than 30 years of economic near-autarky, multilateral trading relationships were restored and trade barriers fell. There was also a massive demographic boost with the baby boom, as well as far-reaching productivity gains stemming from a broader reallocation of resources from agriculture to the industrial and service sectors.
Moreover, in light of Piketty’s second main theme, it is worth noting that, even at the height of social democracy’s golden era, there were only isolated and half-hearted attempts to make fundamental changes to the determinants of power and opportunity across capitalist societies. Only a few countries (notably Germany and Sweden) attempted to create new forms of power sharing and social ownership, such as through codetermination, whereby workers hold seats on corporate boards and participate in strategic decision-making. Meanwhile, progressive wealth taxes (including progressive inheritance taxes) remained largely absent.
For his part, Piketty focuses on the failure of social-democratic societies to provide equal access to education and knowledge, especially higher education. In his telling, the US is the most egregious offender, owing to its private universities and the role played by parental wealth in determining admission and one’s career prospects thereafter. Needless to say, this wealth-driven erosion of equality of opportunity has continued since 1980, as have gender-based inequalities, which were an enduring feature of the 1950-80 era. As Piketty puts it, the golden age of social democracy was also “a sort of golden age of patriarchy in Western culture.”
The 1% Unbound
Since 1980, economic inequality has increased in virtually every country, especially if one considers the growing shares of income and wealth held by just the top 1%, 0.1%, or even 0.01% of the population. Some of the most spectacular increases in inequality have occurred in post-communist societies like Russia and China; inequality has risen much more in the US than in most European countries. Equally important for Piketty’s argument that these countries’ socioeconomic success required material reductions in inequality and steep progressive income taxes is the observation that per capita income growth in advanced economies has declined relative to the 1950-80 period, and will likely continue to do so in the decades to come.
Still, one must remember that even as wealth and income inequalities within countries were increasing, more people were lifted out of absolute poverty during this period than ever before. In absolute terms, this achievement is largely due to China’s explosive economic growth since the start of Deng Xiaoping’s reforms in 1978, and to the less impressive but still remarkable growth in India and other emerging markets since the 1990s. As shown in the oft-cited “elephant curve” of global inequality, growth in emerging economies has reduced inequality between the bottom and the middle of the global income distribution, but other factors have expanded the gap between the middle and the top.
Intra-country inequality has risen for many reasons, including the unbridled globalization of trade and capital movements (not least foreign direct investment), and offshoring and outsourcing of previously well-paying manual jobs. Meanwhile, the integration of China and India into the global economy increased the effective labor-to-capital ratio for the advanced economies. If, as the preponderance of the empirical evidence suggests, the elasticity of substitution between labor and capital were less than one, an increase in the effective labor-to-capital ratio would reduce labor’s share in national income. (In Capital in the Twenty-First Century, Piketty actually assumes that this elasticity is greater than one.)
The rise of new high-tech industries also may have favored capital income and pure economic rents (the returns to genius, luck, and monopoly power) over labor income. In some countries, policymakers allowed the real value of the minimum wage to erode, and increased industrial concentration likely undercut competitive pressures and boosted monopoly rents in many sectors.
Moreover, the tax system in most countries has become far less progressive over time. The top marginal federal income tax rate in the US is now 37%; the highest marginal rate in China, the UK, Germany, and France is now 45%. Russia has an effectively flat personal income tax rate of 13%. In any case, the increased burden of public debt also may have contributed to increased inequality if, as seems plausible, the owners of that debt are richer (on average) than the taxpayers who pay to service it.
Finally, after 1980, the mainstream political parties in the US and many western European countries were transformed from “classist” organizations into representatives of what Piketty calls the “Brahmin left” and the “merchant right.” Under the new dispensation, the less educated and lower paid have no political home, and have increasingly been attracted to populist political entrepreneurs and nativist movements.
Piketty’s Utopia
The vision of participatory socialism laid out in Capital and Ideology rests on three pillars. First, Piketty calls for social ownership and shared voting rights in firms. Second, he advocates more temporary forms of ownership and measures to circulate wealth, such as through progressive taxation of income and wealth, an annual basic income, and a capital endowment to be paid at age 25. Finally, he explains how he would institute international social federalism, offering both an ambitious version and a more modest de minimis outline.
On the issue of power sharing in firms, Piketty proposes a 50-50 split between workers and shareholders, like in Germany today. But, interestingly, he makes no allowance for representatives of the local communities within which firms operate, nor for custodians of wider national or environmental interests.
On fiscal redistribution, Piketty focuses on three progressive taxes that would yield revenues equal to 50% of national income. He argues that his proposed wealth tax would yield 4% of annual national income, and that a progressive inheritance tax would yield another one percentage point. These revenues would be used to pay for the capital endowment, which would be worth roughly 60% of the average wealth across the society.
Finally, his progressive income tax (on corporate profits, social-welfare contributions, payrolls, self-employment, and possibly carbon dioxide emissions) would yield the equivalent of 45% of national income in annual revenue. Revenues equal to around 5% of national income would then be used to fund an annual basic income equal to 60% of average income after taxes, to be paid out to individuals with no other resources (like a negative income tax). The remaining revenues would fund health care, education, pensions, unemployment insurance (which could become redundant because of the basic income), family benefits, cultural and social services, and so forth.
Of course, total public revenues could be increased above 50% of national income if there were indirect taxes (including value-added taxes, sales taxes, tariffs, and import duties), or if government-owned productive enterprises were to make profits. But Piketty doesn’t cover government enterprises, and he seems to have no use for indirect taxes except when correcting for an externality. The carbon tax, which is somehow wrangled into his progressive income-tax scheme, is the only indirect tax to make an appearance.
How does all of this compare to the status quo? While a few OECD countries do have general government spending above 50% of GDP, most do not. In 2017, government spending as a share of national income was 56.4 % in France, 53.7% in Finland, and 51.2% in Denmark, compared to 49.3% in Sweden, 48.4% in Italy, 47.3% in Greece, 44.4% in Germany, 41.2% in Spain, 41.1% in Poland, 40.4% in the UK, 38.9% in Japan, and 37.8% in the US (in 2018).
An Unexamined Socialism
A striking feature of Piketty’s overall proposal is that it lacks almost any kind of basic economic analysis. As such, he mostly ignores incentives, and proceeds as though the size of the economic pie is independent of how it is baked, sliced, and shared. But for Piketty’s redistribution schemes to have any chance of working, cross-border tax evasion and avoidance would have to be reduced substantially, as would tax competition between nation-states and the cross-border movement of mobile factors of production.
In other words, international cooperation between national fiscal and regulatory authorities is a must. Without routine cross-border exchange of information, it would be impossible to maintain comprehensive up-to-date asset registers with which to pursue redistributive wealth taxation. And without common tax schedules for internationally mobile factors of production and financial instruments, there could be no minimal social federalism on a global scale.
To be effective in containing CO2 emissions, the carbon tax also would have to be implemented on a global scale. But while a variable-rate or progressive carbon tax would allow too many small emitters to continue fueling the climate crisis, an (environmentally efficient) flat-rate tax would be highly regressive, given that close to 600 million people in Sub-Saharan Africa currently lack access to electricity. Providing them with energy, even if the most carbon-efficient methods were employed, inevitably would boost the region’s CO2 emissions. To prevent such a policy from being punitive for Africa and other regions would require offsetting transfer payments from rich countries. But managing meaningful cross-border transfers would necessitate an even more ambitious version of Piketty’s global social federalism.
What are the prospects for this level of international cooperation? There has been some progress in information sharing between tax authorities (in the US, for instance) and foreign financial institutions (such as in Switzerland); and some of the more egregious tax havens have indeed come under pressure. But the number of countries with very low tax rates and limited transparency does not appear to be shrinking significantly. External fiscal constraints on national redistribution policies are therefore often binding, and they are likely to remain so.
Besides, there will also continue to be strong domestic political constraints on aggressive redistribution policies. In the UK’s latest general election, the Labour Party ran on a radically progressive agenda and suffered its worst loss since 1935. Though Brexit obviously played an important role in that outcome, there are very few countries where a majority of voters trust the public sector to spend 50% of GDP responsibly. Yet Piketty pays little attention to the issue of how public expenditures and revenues are managed, even though the informational and incentive problems involved are massive.
Ad Hoc Pragmatism
Beyond the three pillars of participatory socialism, Piketty also advocates three ad hoc measures to limit and reduce inequality. The first concerns educational justice, which holds that public funding for all education (primary, secondary, and tertiary) is insufficient as long as existing inequalities can impair access for those at the middle and bottom of the income and wealth scale. In the case of the US, Piketty proposes a progressive tax on university endowments to finance an endowment fund for poorer universities. Obviously, this idea is unlikely to play well at Harvard and Yale.
A second measure aims to limit the influence of big money in politics. Here, Piketty proposes that parties and campaigns be financed with “democratic equality vouchers” of, say, $5, provided to every voting citizen annually. Meanwhile, political contributions by firms and other non-personal legal entities would be prohibited, and individual donations would be strictly limited. This all sounds like a splendid idea. Unfortunately, it has a snowball’s chance in hell of being adopted in many countries, particularly in the US following the Supreme Court’s notorious Citizens United decision in 2010.
The third proposal is to use quotas, reservations, and other categorical-priority policies (like affirmative action) to address persistent forms of inequality and discrimination, such as those associated with race, ethnicity, gender, and caste.
The journey through this book is long but rewarding. Piketty’s historical analysis of inequality around the world is fascinating, and even the wishful thinking underlying his “participatory socialism” makes for interesting reading, so long as it is recognized for what it is. Everything is possible, but not everything is likely. If two world wars and the Great Depression could not trigger a transition to anything close to a participatory socialist regime that includes a form of social federalism at the global level, the odds of achieving it in the coming decades must be negligible.
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NEW YORK – French economist Thomas Piketty’s latest doorstop tome tries to fuse two distinct research efforts. The first is a history of inequality since around 1700, with occasional excursions into earlier periods. Upon reaching the nineteenth century and the industrial era, the analysis deepens and grows more detailed, taking us up to the present. Unlike Piketty’s previous opus, Capital in the Twenty-First Century, which focused on the United States and just a few European countries, Capital and Ideology expands the scope to cover India, China, Brazil, and much of the postcolonial world.
The book’s second major objective is to provide a blueprint for “participatory socialism” at the global level. Piketty envisions a world in which the only inequality is “just inequality.” The latter includes income and wealth differences that “are the result of different aspirations and distinct life choices or permit improvement of the standard of living and expansion of the opportunities available to the disadvantaged.” In other words, permissible inequality should be determined on a Rawlsian basis, which allows for differences of position so long as they benefit the least well off in society.
These two overarching themes and associated research programs are not organically connected. Nothing resembling Piketty’s vision for global participatory socialism has developed during the 250-year history of “inequality regimes” that constitutes the bulk of the book. Not even the heyday of Western social democracy (1930-80) came close to what Piketty has in mind. In today’s political climate, moving our hyper-capitalist, nationalist, and identitarian societies toward Piketty’s ideal would require nothing short of a global revolution.
The Evolution of Inequality
Although Piketty’s opponents often glibly dismiss him as a closet Marxist, he is no economic or technological determinist. “Given an economy and a set of productive forces in a certain state of development,” he writes, “a range of possible ideological, political, and inequality regimes always exists.” He thus concludes that, “inequality is neither economic nor technological; it is ideological and political.” Political entrepreneurship, historical contingencies, and ideological climates all play a role in shaping economic institutions and structures.
According to Piketty, the political processes that reduced inequality in the past also helped to create what he considers “our most precious institutions – those that have made human progress a reality, including universal suffrage, free and compulsory public schools, universal health insurance, and progressive taxation.”
Piketty distinguishes between six categories of social organization: trifunctional (as in the pre-modern structure of clergy, warriors, and commoners), slaveist, colonialist, proprietarian, social-democratic, and communist. These categories are interpreted flexibly. For example, between 1527 and 1865, Sweden actually had four classes (nobility, clergy, urban bourgeoisie, and landowning peasantry) and colonial India had – or was seen by British colonialists to have – four main castes: Brahmins, Kshatriyas, Vaishyas, and Shudras. Similarly, “social democracy” comprises not just European welfare states but also the US in the years between the New Deal and President Ronald Reagan’s election.
The book provides a detailed account of how premodern trifunctional societies with weak, decentralized states evolved into today’s extremely inegalitarian ownership (proprietarian) societies with stronger, centralized states. The description of the period from around 1800 until World War I benefits greatly from its inclusion of slave and colonial societies, particularly its discussion of the compensation that former European slave owners received when that deplorable institution was abolished. Here, Piketty is absolutely correct that “it is impossible to understand the structure of inequality today without taking into account the heavy inegalitarian legacy of slavery and colonialism.”
In the ideal or typical proprietarian society, private individuals (or dynasties) can exercise and exploit perpetual wealth ownership. A centralized state, which funds itself through taxes approved by the citizenry (whose status is based on wealth) monopolizes the once-royal powers of security, justice, and the legitimate use of force, and guarantees full, complete, inviolable, and permanent property rights.
In Piketty’s account, ownership societies suffered a threefold crisis in the 1914-45 period. Increasing inequality during the proprietarian era (1800-1914) gave rise to internal challenges. The first were the social-democratic and communist counter-discourses, which had already started in the early nineteenth century. Then came the emergence of social-democratic and communist counter-regimes in the late nineteenth and early twentieth centuries. Piketty believes that “the powerful social and political tensions stemming from rising inequality contributed to the rise of nationalism and therefore the likelihood of war.” But he offers little evidence for this conjecture. In fact, many countries – including the US and the United Kingdom – actually introduced steep progressive income and inheritance taxes during this period.
In any case, the two decades of decolonization after World War II had long been preceded by critiques of and attacks on the colonial order, not to mention the growth of national independence movements in the colonies themselves. Like the two world wars and the rejection of free trade and the free movement of capital, nationalist and identitarian (race- and ethnicity-based) politics directly challenged the model of the classic ownership societies.
Les Trente Glorieuses
During the 1950-80 period, most proprietarian societies continued to follow the more egalitarian development paths initiated during the previous era. Inequality declined almost everywhere, and European income and wealth inequality, which had been significantly greater than that of the US until 1914, fell below US levels. This trend owed much to progressive income taxes and significant growth in public spending (and tax revenues) as a share of GDP, which was enabled by buoyant economic growth – including robust real (inflation-adjusted) wage gains.
Secure your copy of PS Quarterly: Age of Extremes
The newest issue of our magazine, PS Quarterly: Age of Extremes, is here. To gain digital access to all of the magazine’s content, and receive your print copy, subscribe to PS Premium now.
Subscribe Now
Public spending on health, education, pensions, and welfare rose dramatically during this period. Between 1932 and 1980, the top marginal income tax rate averaged 81% in the US, 89% in the UK, 58% in Germany, and 60% in France. Here, Piketty asserts a causal connection between the period’s extraordinary economic performance and the attendant reductions in inequality: “the economic and social success of the capitalist countries in the twentieth century depended on ambitious and largely successful programs to reduce inequality, and in particular on steeply progressive taxes.”
But, again, there is little evidence to back the assertion. The only thing we can say with any degree of confidence is that material reductions in inequality and steep progressive income taxes were compatible with these countries’ economic and social success. Whether they were necessary to that success remains an open question. After all, one can point to many other drivers of growth in the advanced economies during the 1950-80 period. The world was recovering from the destruction and dislocation of two world wars, and from the unprecedented output and employment losses of the Great Depression. Following more than 30 years of economic near-autarky, multilateral trading relationships were restored and trade barriers fell. There was also a massive demographic boost with the baby boom, as well as far-reaching productivity gains stemming from a broader reallocation of resources from agriculture to the industrial and service sectors.
Moreover, in light of Piketty’s second main theme, it is worth noting that, even at the height of social democracy’s golden era, there were only isolated and half-hearted attempts to make fundamental changes to the determinants of power and opportunity across capitalist societies. Only a few countries (notably Germany and Sweden) attempted to create new forms of power sharing and social ownership, such as through codetermination, whereby workers hold seats on corporate boards and participate in strategic decision-making. Meanwhile, progressive wealth taxes (including progressive inheritance taxes) remained largely absent.
For his part, Piketty focuses on the failure of social-democratic societies to provide equal access to education and knowledge, especially higher education. In his telling, the US is the most egregious offender, owing to its private universities and the role played by parental wealth in determining admission and one’s career prospects thereafter. Needless to say, this wealth-driven erosion of equality of opportunity has continued since 1980, as have gender-based inequalities, which were an enduring feature of the 1950-80 era. As Piketty puts it, the golden age of social democracy was also “a sort of golden age of patriarchy in Western culture.”
The 1% Unbound
Since 1980, economic inequality has increased in virtually every country, especially if one considers the growing shares of income and wealth held by just the top 1%, 0.1%, or even 0.01% of the population. Some of the most spectacular increases in inequality have occurred in post-communist societies like Russia and China; inequality has risen much more in the US than in most European countries. Equally important for Piketty’s argument that these countries’ socioeconomic success required material reductions in inequality and steep progressive income taxes is the observation that per capita income growth in advanced economies has declined relative to the 1950-80 period, and will likely continue to do so in the decades to come.
Still, one must remember that even as wealth and income inequalities within countries were increasing, more people were lifted out of absolute poverty during this period than ever before. In absolute terms, this achievement is largely due to China’s explosive economic growth since the start of Deng Xiaoping’s reforms in 1978, and to the less impressive but still remarkable growth in India and other emerging markets since the 1990s. As shown in the oft-cited “elephant curve” of global inequality, growth in emerging economies has reduced inequality between the bottom and the middle of the global income distribution, but other factors have expanded the gap between the middle and the top.
Intra-country inequality has risen for many reasons, including the unbridled globalization of trade and capital movements (not least foreign direct investment), and offshoring and outsourcing of previously well-paying manual jobs. Meanwhile, the integration of China and India into the global economy increased the effective labor-to-capital ratio for the advanced economies. If, as the preponderance of the empirical evidence suggests, the elasticity of substitution between labor and capital were less than one, an increase in the effective labor-to-capital ratio would reduce labor’s share in national income. (In Capital in the Twenty-First Century, Piketty actually assumes that this elasticity is greater than one.)
The rise of new high-tech industries also may have favored capital income and pure economic rents (the returns to genius, luck, and monopoly power) over labor income. In some countries, policymakers allowed the real value of the minimum wage to erode, and increased industrial concentration likely undercut competitive pressures and boosted monopoly rents in many sectors.
Moreover, the tax system in most countries has become far less progressive over time. The top marginal federal income tax rate in the US is now 37%; the highest marginal rate in China, the UK, Germany, and France is now 45%. Russia has an effectively flat personal income tax rate of 13%. In any case, the increased burden of public debt also may have contributed to increased inequality if, as seems plausible, the owners of that debt are richer (on average) than the taxpayers who pay to service it.
Finally, after 1980, the mainstream political parties in the US and many western European countries were transformed from “classist” organizations into representatives of what Piketty calls the “Brahmin left” and the “merchant right.” Under the new dispensation, the less educated and lower paid have no political home, and have increasingly been attracted to populist political entrepreneurs and nativist movements.
Piketty’s Utopia
The vision of participatory socialism laid out in Capital and Ideology rests on three pillars. First, Piketty calls for social ownership and shared voting rights in firms. Second, he advocates more temporary forms of ownership and measures to circulate wealth, such as through progressive taxation of income and wealth, an annual basic income, and a capital endowment to be paid at age 25. Finally, he explains how he would institute international social federalism, offering both an ambitious version and a more modest de minimis outline.
On the issue of power sharing in firms, Piketty proposes a 50-50 split between workers and shareholders, like in Germany today. But, interestingly, he makes no allowance for representatives of the local communities within which firms operate, nor for custodians of wider national or environmental interests.
On fiscal redistribution, Piketty focuses on three progressive taxes that would yield revenues equal to 50% of national income. He argues that his proposed wealth tax would yield 4% of annual national income, and that a progressive inheritance tax would yield another one percentage point. These revenues would be used to pay for the capital endowment, which would be worth roughly 60% of the average wealth across the society.
Finally, his progressive income tax (on corporate profits, social-welfare contributions, payrolls, self-employment, and possibly carbon dioxide emissions) would yield the equivalent of 45% of national income in annual revenue. Revenues equal to around 5% of national income would then be used to fund an annual basic income equal to 60% of average income after taxes, to be paid out to individuals with no other resources (like a negative income tax). The remaining revenues would fund health care, education, pensions, unemployment insurance (which could become redundant because of the basic income), family benefits, cultural and social services, and so forth.
Of course, total public revenues could be increased above 50% of national income if there were indirect taxes (including value-added taxes, sales taxes, tariffs, and import duties), or if government-owned productive enterprises were to make profits. But Piketty doesn’t cover government enterprises, and he seems to have no use for indirect taxes except when correcting for an externality. The carbon tax, which is somehow wrangled into his progressive income-tax scheme, is the only indirect tax to make an appearance.
How does all of this compare to the status quo? While a few OECD countries do have general government spending above 50% of GDP, most do not. In 2017, government spending as a share of national income was 56.4 % in France, 53.7% in Finland, and 51.2% in Denmark, compared to 49.3% in Sweden, 48.4% in Italy, 47.3% in Greece, 44.4% in Germany, 41.2% in Spain, 41.1% in Poland, 40.4% in the UK, 38.9% in Japan, and 37.8% in the US (in 2018).
An Unexamined Socialism
A striking feature of Piketty’s overall proposal is that it lacks almost any kind of basic economic analysis. As such, he mostly ignores incentives, and proceeds as though the size of the economic pie is independent of how it is baked, sliced, and shared. But for Piketty’s redistribution schemes to have any chance of working, cross-border tax evasion and avoidance would have to be reduced substantially, as would tax competition between nation-states and the cross-border movement of mobile factors of production.
In other words, international cooperation between national fiscal and regulatory authorities is a must. Without routine cross-border exchange of information, it would be impossible to maintain comprehensive up-to-date asset registers with which to pursue redistributive wealth taxation. And without common tax schedules for internationally mobile factors of production and financial instruments, there could be no minimal social federalism on a global scale.
To be effective in containing CO2 emissions, the carbon tax also would have to be implemented on a global scale. But while a variable-rate or progressive carbon tax would allow too many small emitters to continue fueling the climate crisis, an (environmentally efficient) flat-rate tax would be highly regressive, given that close to 600 million people in Sub-Saharan Africa currently lack access to electricity. Providing them with energy, even if the most carbon-efficient methods were employed, inevitably would boost the region’s CO2 emissions. To prevent such a policy from being punitive for Africa and other regions would require offsetting transfer payments from rich countries. But managing meaningful cross-border transfers would necessitate an even more ambitious version of Piketty’s global social federalism.
What are the prospects for this level of international cooperation? There has been some progress in information sharing between tax authorities (in the US, for instance) and foreign financial institutions (such as in Switzerland); and some of the more egregious tax havens have indeed come under pressure. But the number of countries with very low tax rates and limited transparency does not appear to be shrinking significantly. External fiscal constraints on national redistribution policies are therefore often binding, and they are likely to remain so.
Besides, there will also continue to be strong domestic political constraints on aggressive redistribution policies. In the UK’s latest general election, the Labour Party ran on a radically progressive agenda and suffered its worst loss since 1935. Though Brexit obviously played an important role in that outcome, there are very few countries where a majority of voters trust the public sector to spend 50% of GDP responsibly. Yet Piketty pays little attention to the issue of how public expenditures and revenues are managed, even though the informational and incentive problems involved are massive.
Ad Hoc Pragmatism
Beyond the three pillars of participatory socialism, Piketty also advocates three ad hoc measures to limit and reduce inequality. The first concerns educational justice, which holds that public funding for all education (primary, secondary, and tertiary) is insufficient as long as existing inequalities can impair access for those at the middle and bottom of the income and wealth scale. In the case of the US, Piketty proposes a progressive tax on university endowments to finance an endowment fund for poorer universities. Obviously, this idea is unlikely to play well at Harvard and Yale.
A second measure aims to limit the influence of big money in politics. Here, Piketty proposes that parties and campaigns be financed with “democratic equality vouchers” of, say, $5, provided to every voting citizen annually. Meanwhile, political contributions by firms and other non-personal legal entities would be prohibited, and individual donations would be strictly limited. This all sounds like a splendid idea. Unfortunately, it has a snowball’s chance in hell of being adopted in many countries, particularly in the US following the Supreme Court’s notorious Citizens United decision in 2010.
The third proposal is to use quotas, reservations, and other categorical-priority policies (like affirmative action) to address persistent forms of inequality and discrimination, such as those associated with race, ethnicity, gender, and caste.
The journey through this book is long but rewarding. Piketty’s historical analysis of inequality around the world is fascinating, and even the wishful thinking underlying his “participatory socialism” makes for interesting reading, so long as it is recognized for what it is. Everything is possible, but not everything is likely. If two world wars and the Great Depression could not trigger a transition to anything close to a participatory socialist regime that includes a form of social federalism at the global level, the odds of achieving it in the coming decades must be negligible.