With the Miliband: Thomas Piketty. (Image: Dan Murrell)
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Thomas Piketty: a modern French revolutionary

Piketty’s book Capital is being acclaimed as the most important work of political economy to be published in decades. It has certainly caught the attention of Ed Miliband’s inner circle.

In Balzac’s novel Le père Goriot (1834-35), the impoverished young nobleman Rastignac is confronted with a dilemma by the cynical convict Vautrin: should he work and study hard to become a lawyer, only to earn a mediocre income, or should he seduce an eligible heiress and lay his hands on an inheritance sufficient to pay him an income worth ten times as much? Rastignac mulls the path of seduction until he is asked to bump off a brother who stands inconveniently between the heiress and her fortune. Murder is a step too far, even for a social climber.

Rastignac’s dilemma is one of the literary vignettes that enliven the most remarkable work of economics in recent years, if not decades: the French economist Thomas Piketty’s Capital in the 21st Century. It was first published last year in France, and its appearance in English this spring (Belknap/Harvard, £29.95) has caused an intellectual sensation on both sides of the Atlantic. It has been called “one of the watershed books in economic thinking”, a “magisterial treatise on capitalism’s inherent dynamics” and a “bold attempt to pick up where Marx left off and correct what he got wrong”. The American Nobel economics laureate Paul Krugman has described it as “epic”, with a “sweeping vision”, while Jacob Hacker – the Yale political scientist credited with coining the term “predistribution” – has compared Piketty to de Tocqueville.

Piketty, who was born in 1971, has made his name studying the historical evolution of income and wealth distributions in advanced economies. A son of parents from the radical soixante-huit generation, Piketty was an intellectual star in the making from an early age, completing his doctorate on wealth redistribution at 22 before becoming an assistant professor at Massachusetts Institute of Technology. A few years later, dissatisfied with the mathematical abstractions of US economics, he returned to France and began researching the work that would establish his academic reputation, Top Incomes in France in the 20th Century. From there, Piketty collaborated with other academic luminaries such as Emmanuel Saez, Tony Atkinson and Facundo Alvaredo to produce groundbreaking empirical studies of the highest incomes in leading capitalist economies, now synthesised into the World Top Incomes Database. These have galvanised new interest in the causes and consequences of widening inequality, while helping inspire the slogan of the Occupy movement: “We are the 99 per cent.”

The central thesis of Piketty’s latest book is that in societies where the rate of return on capital outstrips economic growth, wealth inequality ineluctably rises. Once constituted, capital reproduces itself faster than economic output increases. The entrepreneur becomes a rentier and inequalities harden. We are returning to the 19th-century world of the novels of Balzac and Jane Austen, whose characters are caught up in the trials and tribulations of inheriting, living off or losing wealth.

Piketty’s thesis is arresting because he buttresses it with ample historical data to show that the reduction of inequality in the middle of the 20th century was an exception, not the norm in a market economy. Ordinarily, he argues, if capital is reinvested it yields between 4 and 5 per cent a year, outstripping economic growth. Wealth inequalities therefore increase. This has been true of almost all human history. The 20th century was exceptional because of the capital shocks of two world wars, decolonisation and the growth of the welfare state. The huge inequalities of the belle époque gave way to a more egalitarian distribution as capital was destroyed, taxed or nationalised to pay for the war effort and the building of public services and social security. Growth, on the other hand, was relatively high because of technological catch-up and convergence, particularly in Europe and Japan following the Second World War.

In the late 1970s and 1980s, these processes started to go into reverse, as growth rates slowed, capital was rebuilt, taxes on wealth and top incomes were cut, and the institutions of postwar social democracy were dismantled. Today, wealth holdings in the advanced economies are six times as large as annual national income – the same sort of level as existed before the First World War.

There are important differences in the structure of wealth inequality between these two epochs, however. In the Edwardian era, the richest 10 per cent owned virtually all the nation’s wealth in countries such as France and Britain; the wealthiest 1 per cent owned roughly half, and the middle 40 per cent only 5 per cent. Today, the top 10 per cent own 60 per cent of Europe’s wealth and 70 per cent in the US, while the middle class owns between a third and a quarter, respectively. In historical terms, this growth of a “patrimonial middle class” has been an important transformation, underpinning its political importance in distributional conflicts and its swing position in the electoral landscapes of advanced economies. In contrast, nothing has changed for the assets of the poorer half of the population: it still owns less than 5 per cent of the wealth, as it did before the First World War.

Piketty also shows that increased income inequality in the past 30 years has changed patterns at the top. The top 1 per cent of the income distribution now lives off higher labour incomes, and not just rents from wealth. As property has penetrated into the middle classes, so the “coupon-clippers” cohabit with the “working rich” at the very top. These are the “supermanagers” or top executives of large firms who have vastly increased their compensation packages since the 1980s.

In 1929, the year of the Wall Street crash, income from capital was the primary resource of the top 1 per cent of the income hierarchy in the US; in 2007, you have to climb into the top 0.1 per cent before that is true. Of this super-elite group at the pinnacle of the income distribution, between 60 and 70 per cent consists of top executives. Contrary to popular myths, less than one in 20 is a celebrity or sports star, and only one in five is a banker. There has been a “skyrocketing” of the pay packages of leading executives in large firms in the non-financial as well as financial sectors.

What accounts for this? Piketty argues that it has nothing whatever to do with managerial talent. It is the product of collusion between executives and their boards, pure and simple. When marginal tax rates onthe super-rich ran at 90 per cent, as they did in the 1960s and 1970s in the US and elsewhere, there was little point awarding oneself a huge pay rise. But when those rates fell to 25 per cent, there was every incentive to do so.

This income inequality produces its own peculiar ideology, which Piketty terms “meritocratic extremism”. Without very high pay, the argument goes, only those who inherit wealth can amass riches, which would be unfair. Very high pay rewards talent and enterprise and therefore contributes to social justice. Piketty is scathing in his contempt for this ideology.

“This kind of argument,” he writes, “could well the lay the groundwork for greater and more violent inequality in the future. The world may come to combine the worst of two past worlds: both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity . . . Meritocratic extremism can thus lead to a race between supermanagers and rentiers, to the detriment of those who are neither.”

Given these findings, it is not surprising that Piketty’s prognosis is bleak. Without countervailing political action, we can expect worsening trends. Population will be stable or falling in the advanced economies, while the rate of technological progress cannot be expected to exceed 1-1.5 per cent. Hence, if the rate of return on capital remains between 4 and 5 per cent, it will easily outstrip growth. In the 21st century, current wealth inequalities will therefore be amplified, the consequences of which, Piketty argues, “are potentially terrifying”. We will all live under the dead hand of the accumulated inequalities of past generations. “The earth belongs to the living,” Thomas Jefferson once wrote. But if Piketty is right, in the coming century, the dead will rule the world as “the past devours the future”.

A more competitive market – doubling down on the free-market experiment – will not spring this trap. As Piketty noted in a recent interview, “. . . the fact that returns on capital are higher than the growth rate has nothing to do with monopolies, and cannot be resolved by more competition. On the contrary, the purer and more competitive the capital market, the greater the gap between return on capital and the growth rate.”

Instead, we need to rebuild the democratic institutions that can redistribute income and wealth. His signature policy is a global tax on wealth, levied progressively at different wealth bands. He is politically realistic enough to know that formidable practical and political obstacles lie in the path towards that objective. So he sets out various steps towards it, such as greater transparency about asset ownership, and automatic transmission of bank data to tax authorities, while urging the adoption of a wealth tax at the European level. A tax at 0 per cent on fortunes below €1m, 1 per cent between €1m and €5m, and 2 per cent above €5m would affect about 2.5 per cent of the population of the European Union and raise about 2 per cent of Europe’s GDP.

This would of course require greater political and fiscal integration in Europe, which is why Piketty was a co-signatory, with Pierre Rosanvallon and other French intellectuals, to a recent open letter calling for tax-raising powers and a budget for the eurozone, held accountable to a new European chamber of national parliamentarians. Is this utopian? No more so than the “stateless currency” the eurozone already possesses, he says.

Is Piketty’s analysis too pessimistic? Thoughtful politicians will embrace much of his analysis. Stewart Wood, Ed Miliband’s intellectual consigliere, has read the book and called for its arguments to be debated widely. Piketty’s work gives substantive grounding to the core argument of Miliband’s leadership that Britain’s post-Thatcherite economic model generates socially destructive, unjustified and ultimately unstable inequalities. But parties aspiring to elected office will also be deeply wary of the politics of levying supertaxes on the wealthy, and with good reason: François Hollande is currently the most unpopular president in French history.

When the social-democratic and liberal politicians of the mid-20th century built the good society, they did so with an organised working class at their backs, pushing them forward. No such historical force exists today in advanced capitalist democracies. Nor do we really know from Piketty’s analysis what political action can achieve, because his analysis of the reduction of wealth and income inequality in the 20th century doesn’t quantify how much came from wars, and how much from public action, such as taxation.

Piketty also rests his central claim that the rate of return on capital exceeds growth largely on historical data, which leaves him open to the criticism that Dean Baker and other economists have made, namely that he underplays the potential to reduce inequality offered by progressive policies other than taxation, such as reforms to corporate governance and intellectual property rights, or egalitarian education and skills, wage enhancement and public investment strategies. He leaves largely unexplored the potential for spreading capital ownership itself more equitably in society, so that more can share in its returns. Indeed, his work could be used to justify wealth predistribution policies, such as employee share ownership, profit-sharing, the creation of new sovereign wealth funds and universal asset stakes for citizens, instead of redistributive wealth taxes.

The magisterial sweep of Piketty’s Capital is such that he cannot answer everything. His range is immense. And his open, fluent style will guarantee him a wide readership. In contrast to much of what passes for orthodox economics, he is engaged with the problems of the real world (indeed, he took time out from his academic career to advise the Socialist candidate Ségolène Royal in her bid for the French presidency in 2007). The discipline of economics, Piketty argues, remains trapped in a juvenile passion for mathematics, divorced from history and its sister social sciences. His work aims to change that.

Perhaps his greatest achievement is to rescue the study of inequality for “political economy” – a term that went out of fashion in the 20th century but which is now experiencing a revival. Despite the enormity of the challenges Thomas Piketty’s book poses, it ends on a note of urgent activism, not acquiescence: “If democracy is some day to regain control of capitalism, it must start by recognising that the concrete institutions in which democracy and capitalism are embodied need to be reinvented again and again.”

Nick Pearce is the director of the Institute for Public Policy Research, where Thomas Piketty will be speaking on 30 April. For details visit: ippr.org/events

Nick Pearce is Professor of Public Policy & Director of the Institute for Policy Research, University of Bath.

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The French millennials marching behind Marine Le Pen

A Front National rally attracts former socialists with manicured beards, and a lesbian couple. 

“In 85 days, Marine will be President of the French Republic!” The 150-strong crowd cheered at the sound of the words. On stage, the speaker, the vice-president of the far-right Front National (FN), Florian Philippot, continued: “We will be told that it’s the apocalypse, by the same banks, media, politicians, who were telling the British that Brexit would be an immediate catastrophe.

"Well, they voted, and it’s not! The British are much better off than we are!” The applause grew louder and louder. 

I was in the medieval city of Metz, in a municipal hall near the banks of the Moselle River, a tributary of the Rhine from which the region takes its name. The German border lies 49km east; Luxembourg City is less than an hour’s drive away. This is the "Country of the Three Borders", equidistant from Strasbourg and Frankfurt, and French, German and French again after various wars. Yet for all that local history is deeply rooted in the wider European history, votes for the Front National rank among the highest nationally, and continue to rise at every poll. 

In rural Moselle, “Marine”, as the Front National leader Marine Le Pen is known, has an envoy. In 2014, the well-spoken, elite-educated Philippot, 35, ran for mayor in Forbach, a former miner’s town near the border. He lost to the Socialist candidate but has visited regularly since. Enough for the locals to call him “Florian".

I grew up in a small town, Saint-Avold, halfway between Metz and Forbach. When my grandfather was working in the then-prosperous coal mines, the Moselle region attracted many foreign workers. Many of my fellow schoolmates bore Italian and Polish surnames. But the last mine closed in 2004, and now, some of the immigrants’ grandchildren are voting for the National Front.

Returning, I can't help but wonder: How did my generation, born with the Maastricht treaty, end up turning to the Eurosceptic, hard right FN?

“We’ve seen what the other political parties do – it’s always the same. We must try something else," said Candice Bertrand, 23, She might not be part of the group asking Philippot for selfies, but she had voted FN at every election, and her family agreed. “My mum was a Communist, then voted for [Nicolas] Sarkozy, and now she votes FN. She’s come a long way.”  The way, it seemed, was political distrust.

Minutes earlier, Philippot had pleaded with the audience to talk to their relatives and neighbours. Bertrand had brought her girlfriend, Lola, whom she was trying to convince to vote FN.  Lola wouldn’t give her surname – her strongly left-wing family would “certainly not” like to know she was there. She herself had never voted.

This infuriated Bertrand. “Women have fought for the right to vote!” she declared. Daily chats with Bertrand and her family had warmed up Lola to voting Le Pen in the first round, although not yet in the second. “I’m scared of a major change,” she confided, looking lost. “It’s a bit too extreme.” Both were too young to remember 2002, when a presidential victory for the then-Front National leader Jean-Marie Le Pen, was only a few percentage points away.

Since then, under the leadership of his daughter, Marine, the FN has broken every record. But in this region, the FN’s success isn’t new. In 2002, when liberal France was shocked to see Le Pen reach the second round of the presidential election, the FN was already sailing in Moselle. Le Pen grabbed 23.7 per cent of the Moselle vote in the first round and 21.9 per cent in the second, compared to 16.9 per cent and 17.8 per cent nationally. 

The far-right vote in Moselle remained higher than the national average before skyrocketing in 2012. By then, the younger, softer-looking Marine had taken over the party. In that year, the FN won an astonishing 24.7 per cent of the Moselle vote, and 17.8 per cent nationwide.

For some people of my generation, the FN has already provided opportunities. With his manicured beard and chic suit, Emilien Noé still looks like the Young Socialist he was between 16 and 18 years old. But looks can be deceiving. “I have been disgusted by the internal politics at the Socialist Party, the lack of respect for the low-ranked campaigners," he told me. So instead, he stood as the FN’s youngest national candidate to become mayor in his village, Gosselming, in 2014. “I entered directly into action," he said. (He lost). Now, at just 21, Noé is the FN’s youth coordinator for Eastern France.

Metz, Creative Commons licence credit Morgaine

Next to him stood Kevin Pfeiffer, 27. He told me he used to believe in the Socialist ideal, too - in 2007, as a 17-year-old, he backed Ségolène Royal against Sarkozy. But he is now a FN local councillor and acts as the party's general co-ordinator in the region. Both Noé and Pfeiffer radiated a quiet self-confidence, the sort that such swift rises induces. They shared a deep respect for the young-achiever-in-chief: Philippot. “We’re young and we know we can have perspectives in this party without being a graduate of l’ENA,” said another activist, Olivier Musci, 24. (The elite school Ecole Nationale d’Administration, or ENA, is considered something of a mandatory finishing school for politicians. It counts Francois Hollande and Jacques Chirac among its alumni. Ironically, Philippot is one, too.)

“Florian” likes to say that the FN scores the highest among the young. “Today’s youth have not grown up in a left-right divide”, he told me when I asked why. “The big topics, for them, were Maastricht, 9/11, the Chinese competition, and now Brexit. They have grown up in a political world structured around two poles: globalism versus patriotism.” Notably, half his speech was dedicated to ridiculing the FN's most probably rival, the maverick centrist Emmanuel Macron. “It is a time of the nations. Macron is the opposite of that," Philippot declared. 

At the rally, the blue, red and white flame, the FN’s historic logo, was nowhere to be seen. Even the words “Front National” had deserted the posters, which were instead plastered with “in the name of the people” slogans beneath Marine’s name and large smile. But everyone wears a blue rose at the buttonhole. “It’s the synthesis between the left’s rose and the right’s blue colour”, Pfeiffer said. “The symbol of the impossible becoming possible.” So, neither left nor right? I ask, echoing Macron’s campaign appeal. “Or both left and right”, Pfeiffer answered with a grin.

This nationwide rebranding follows years of efforts to polish the party’s jackass image, forged by decades of xenophobic, racist and anti-Semitic declarations by Le Pen Sr. His daughter evicted him from the party in 2015.

Still, Le Pen’s main pledges revolve around the same issue her father obsessed over - immigration. The resources spent on "dealing with migrants" will, Le Pen promises, be redirected to address the concerns of "the French people". Unemployment, which has been hovering at 10 per cent for years, is very much one of them. Moselle's damaged job market is a booster for the FN - between 10 and 12 per cent of young people are unemployed.

Yet the two phenomena cannot always rationally be linked. The female FN supporters I met candidly admitted they drove from France to Luxembourg every day for work and, like many locals, often went shopping in Germany. Yet they hoped to see the candidate of “Frexit” enter the Elysee palace in May. “We've never had problems to work in Luxembourg. Why would that change?” asked Bertrand. (Le Pen's “144 campaign pledges” promise frontier workers “special measures” to cross the border once out of the Schengen area, which sounds very much like the concept of the Schengen area itself.)

Grégoire Laloux, 21, studied history at the University of Metz. He didn't believe in the European Union. “Countries have their own interests. There are people, but no European people,” he said. “Marine is different because she defends patriotism, sovereignty, French greatness and French history.” He compared Le Pen to Richelieu, the cardinal who made Louis XIV's absolute monarchy possible:  “She, too, wants to build a modern state.”

French populists are quick to link the country's current problems to immigration, and these FN supporters were no exception. “With 7m poor and unemployed, we can't accept all the world's misery,” Olivier Musci, 24, a grandchild of Polish and Italian immigrants, told me. “Those we welcome must serve the country and be proud to be here.”

Lola echoed this call for more assimilation. “At our shopping centre, everyone speaks Arabic now," she said. "People have spat on us, thrown pebbles at us because we're lesbians. But I'm in my country and I have the right to do what I want.” When I asked if the people who attacked them were migrants, she was not so sure. “Let's say, they weren't white.”

Trump promised to “Make America Great Again”. To where would Le Pen's France return? Would it be sovereign again? White again? French again? Ruled by absolutism again? She has blurred enough lines to seduce voters her father never could – the young, the gay, the left-wingers. At the end of his speech, under the rebranded banners, Philippot invited the audience to sing La Marseillaise with him. And in one voice they did: “To arms citizens! Form your battalions! March, march, let impure blood, water our furrows...” The song is the same as the one I knew growing up. But it seemed to me, this time, a more sinister tune.