The ‘Downton Abbey’ world of the past is returning — and why rising inequality should kill CapitalismBy Prue Hyman
A lot of people are talking about a book newly translated into English from French, Thomas Piketty’s Capital in the 21st Century.
The last such viral reaction to a non-fiction social science work was Richard Pickett and Kate Wilkinson’s 2009 book ‘The Spirit Level,’ revived here by their May 2014 lecture trip. It’s great that both these books highlight economic and social inequality in many countries and the adverse consequences, with Piketty focussing on wealth as well as income.
The essence of Piketty’s argument is that “when the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”
Orthodox economic argument dismantled
He dismantles the orthodox economic argument that income inequality will automatically decrease in advanced phases of capitalist development, eventually stabilising at an acceptable level.
He calls this a penchant for “fairy tales, or at any rate happy endings.” Well, I thought we all knew that, but it is good to have a ‘respectable’ economist agreeing.
Hardly surprisingly, the right attacks his arguments and particularly the policy recommendations, especially an international strong wealth tax.
It is inevitable that those who benefit most from inequality will defend their power over decisions, money, and resources. I refer of course to the 1% (and even more the 0.1%), and the business leaders, politicians, and bureaucrats who are part of this group or whose power base and resources are intimately linked to them.
But as Piketty puts it about the earlier era when wealth inequality was huge and inheritance a crucial part of it: “The experience of France in the Belle Époque proves, if proof were needed, that no hypocrisy is too great when economic and financial elites are obliged to defend their interest.”
Or from Upton Sinclair: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
Concern about inequality has, in terms of rhetoric at least, spread encouragingly across many commentators and international institutions. In New Zealand discussion, child poverty has rightly been a major focus, but inequality more generally is at last again becoming prominent – and of course the two are closely related.\
This discussion has many outlets, with Max Rashbrooke (ed) Inequality: A New Zealand Crisis (2013) and the associated website one useful focus of it, together with great material coming from the voluntary sector, trade unions and beneficiary rights groups.
However, so far, both in NZ and elsewhere, analysis and lamentations have led to little action, let alone reductions in inequality.
Of course the Government has noticed the fuss and claims that they are taking action on child poverty, and that inequality has not worsened recently.
Certainly the big increase occurred from the mid 1980s to the mid 1990s under both Labour and National deregulation policies, with National adding benefit cuts in 1991 and cuts to the top rates of income tax.
Since then there has been no clear trend but part of any short term improvement is simply from top income recipients taking a hit as investment returns fell due to the global financial crisis, not from deliberate policy – and the damage was already done.
The only policy-induced reduction in inequality came from Working for Families, but the In-Work Tax Credit means that part of that is unavailable to many of those worst off, beneficiary households.
So inequality ought to be a major issue in this year’s election. Cuts in top earnings with a maximum CEO/lowest paid employee ratio should be part of this. More immediately practical measures include increasing bottom earnings through better minimum wages and a living wage, attacking the issue at the other end.
Picketty is ‘middle road’
Piketty himself is relatively middle of the road, far from being a socialist. French columnist and editor Agnes Poirier noted that the book was deemed not left-wing enough there, with the Liberation reviewer complaining of not enough mention of ‘class’, ‘exploitation’ and ‘struggle.’
Marxists and socialists are very lukewarm, with David Harvey rightly pointing out that the statistical results would have been attributed by Marx to the imbalance of power between capital and labour.
“The steady decline in labour’s share of national income since the 1970s derived from the declining political and economic power of labour as capital mobilized technologies, unemployment, off-shoring and anti-labour politics to crush all opposition.” – see http://davidharvey.org/2014/05/afterthoughts-pikettys-capital/.
This is of course true too in New Zealand – the right’s defense of top salaries and wider differentials here too is full of hypocrisy and should be demolished – I will return to that in another column.
But meantime, the half of the introduction available free on line gives you a flavour of the book and is well worth reading – see http://www.hup.harvard.edu/features/capital-in-the-twenty-first-century-introduction.html