Prue Hyman’s Column

Thomas Picketty
Thomas Picketty

The ‘Downton Abbey’ world of the past is returning — and why rising inequality should kill Capitalism

By 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.”

NZ Inequality

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  

Interesting statement, ‘knowledge is power….’maybe , but in Kapiti where the single biggest economic driver has been the construction and related industries for twenty years until the recession?

I would rather have my 17 year old finishing a building apprenticeship by 20, starting his own business, pre trade training 17 year olds from three local colleges, then his own brother at age seventeen, as his first apprentice.

Good on you boys they both owned their own homes by twenty one, the oldest, back from 3yrs in Canada, site manages for one of the biggest multimillion dollar residential construction companies in NZ.

Who are the ones pulling up in flash SUVs pulling flasher boats each midweek day the Kapiti sunshines, because they can afford to take the time off site? The twenty five year old builders, plumbers and electricians and I would rather that than some terminally broke 25 year old needing to borrow money, with a student loan the size of a mortgage, from all his years in uni, whether he passed or not.

What a useful summary. I keep thinking that NZ has on three occasions acted to undercut the increasing inequality of capital accumulation and each time ordinary people as well as the country as a whole were the beneficiaries.
The first was the break-up of the big stations over 100 years ago, the second was the 1938 Social Security legislation and the third was during the Kirk government progressive legislation that saw the DPB and innovative funding for communities and community housing. The 2000-2008 Labour government’s programme did some useful things – Kiwi-saver, Cullen super fund and Working for Families but the inequality was so well entrenched that these programmes didn’t turn the tide as the others had, Its important to keep these in mind as something similar has to happen again. The challenge is to build a mindset amongst enough people that such a course of action is natural, common sense and deeply, deeply desirable and a sense of possibility that such a reversal can and should happen again.

You can’t divide one planet by seven point one six billion and get a good result.
There just isn’t enough ‘stuff’ to give everyone a reasonable life style, ie 3 meals a day.
And if we take fossil fuels out of the equation (which we will be doing even more over the next few years) there is less than enough stuff to feed, cloth, etc the 7.16 billion of us.
If this kind of thinking was in the mainstream say 2-300 years ago, then maybe we stood a chance, now it is just to late.
But never fear our leaders gave us Kiwi Saver.

Its unfortunate at the very least, but in general people at the bottom end and to some degree from the middle lack good education. Education is certainly one way to climb the ladder in society but its also an essential tool to have when we talk about power, as the saying goes, “Knowledge is power”.
It is fair to say when we all start out in life that we have equal opportunities, but that’s about where it stops in a capitalist society. We can’t all be Lawyers, CEO’S, owners of big businesses, Prime Ministers or even politicians, there has to be the others, the others being the workers. For some years now I have been advocating for a fairer society, part of that is a living wage. Without a living wage capitalism won’t flourish to its fullest, so why would these so called capitalists of our society want to restrict the worker.
In more recent years, individual contracts instead of collective contracts have become the norm. Divide and rule is the way to keep everyone at bay. Unions and other proactive groups have for many many years been an integral part of the workers life, representing but more importantly educating as well. Without these groups, workers rights, conditions and remuneration would suffer greatly. Whether you are for or against these groups remember these are the people that fought for our current conditions we inherit today, conditions that we take today for granted.
A lot of today’s young people do not understand the history and it is up to us older people to pass this on and inform if we the worker are to succeed in retaining our conditions and argue for a living wage. You won’t succeed alone.
Remember, people is power!