Lachlan R Dale

Thomas Piketty: Is inequality inevitable?

inequality
Image: Sydney Opera House Talks & Ideas (YouTube)

Approx Reading Time-12

When notable economist Thomas Piketty addressed Sydney on the growing issue of inequality in developed nations, I found myself in the crowd.


The press has taken to referring to Thomas Piketty as a “rockstar economist”. Like many, I was drawn to hear Piketty speak after his recent book, Capital: In the 21st Century. The dense, 600-page tome was something of an unexpected phenomenon. To date it has sold over two million copies, and has been cited by President Obama and Pope Francis.

What is particularly novel about Piketty’s work is that it utilises data from the World Wealth Income Database, an incredible collaborative project which aims to increase public access to current and historical country-level economic data. Piketty spends much of Capital wading through this data in order to build an understanding of long-term evolution of income inequality in developed nations.

Both the work of Piketty and the World Wealth Income Database are profoundly important. Allowing citizen groups to initiate economic data projects and forcing greater governmental transparency provides immense potential for social change. We saw a glimpse of this during the last Australian federal election when progressive think tanks successfully set and reset the terms of policy debate thanks to data modelling and analysis.

By influencing our government to take action on matters of inequality, Piketty says it is possible to reverse the trends of wealth concentration, and the unequal access to skills and education.

Piketty’s question for the night is whether inequality is inevitable. To begin, he pulls up a graph that shows the share of total income claimed by the richest 10 percent in the USA. His first point is that it is entirely possible for government policy to reduce inequality, and notes that in the wake of the Great Depression, World War 2 and the Civil Rights movement we can see a clear and dramatic adjustment to the concentration of wealth in the USA.

The depressing corollary, however, is that “the elites” only seem to accept social or fiscal reforms in the face of major shocks – wars, crises or mass social unrest. For his part, Piketty is optimistic that we can find less destructive pathways to enact change in the future, but I find his view hard to share. (A man would later challenge Piketty on this point during the Q&A, and call for a socialist revolution staged by the workers of the world.)

The current situation isn’t good either. While the graph shows income inequality remaining comparatively low and stable from the mid ’40s through to the late ’70s, during the Reagan era wealth concentration increases sharply, and continues on an upward trend until the current day. The only comparable level of income inequality comes just before the stock market crash of 1929 – and the States have exceeded even that.

Piketty’s point is that although the US economy has continued to grow, that growth is not being shared equally. In recent decades there has been a transfer of 15 percent of national income from the bottom 90 percent to the top 10 percent. This means that two-thirds of all aggregate growth today goes to the top 10 percent of the population. In the meanwhile, the purchasing power of minimum wage has experienced an absolute decline over the same period.

Then comes one of the most illuminating moments of the lecture. Piketty presents a graph which maps parental income versus the probability that their children will go to college. It’s almost a perfect relationship: kids from the poorest families had a 20 percent probability of attending college, while those from the wealthiest families had a 95 percent probability.

Given the nature of the US education system, this is perhaps not surprising, but it is an effective way of demonstrating the unequal access to skills and education that persists in the country. The repercussions for employability are also clear, particularly as the economy transitions away from manufacturing and towards technology.

There is clearly an enormous, gaping chasm between the political mythology of America – which champions meritocracy and equal opportunity – and the reality. Piketty claims that we are seeing the return of a patrimonial society in the United States. Wealth is increasingly being concentrated in the upper stratas of society. Policies, like tax cuts to the top income tax bracket, are worsening the situation. Change is needed to rebalance the system.

Unlike Marx (who believed that inequality is inevitable in capitalist societies) and Kuznets (who believed that late stage capitalist nations would naturally become more equal over time), Piketty argues that neither extreme is inevitable. Rather, a nation’s level of inequality is the result of its policies and institutions.

This is an immensely positive claim: by influencing our government to take action on matters of inequality, Piketty says it is possible to reverse the trends of wealth concentration, and the unequal access to skills and education – but this requires strong and focused civil society, armed with both arguments and policy solutions grounded in this sort of foundational data analysis. To this end Piketty calls for “a peaceful revolution” rooted in access to economic data and the democratisation of economic knowledge.

We conclude with some reflections on the future of economic data analysis. Piketty is open about the limitations of Capital, in particular that it focuses on developed nations. What pleases him most about the reception of the book is that it has applied pressure for countries like Brazil, Mexico, Korea and Russia to provide access to their data – but he is clear we must work harder to address the extreme levels of inequality experienced in emerging nations. He notes that inequality is most extreme in the Middle East, and no doubt plays an important part in the instability and social tensions in the region.

For myself, the talk was particularly galvanising. Structural inequality remains one of the most important humanitarian issues in politics. In these darkening times, we will need to hear the voices of more people like Thomas Piketty – lucid, rational optimists who are able to separate the reality from rhetoric, and guide our wandering thoughts back to the path of change.

 

Thomas Piketty’s lecture is available in full thanks to the Sydney Opera House.

 

Related posts

Top