Thomas Piketty, the French economist, has written a book that has silenced even the most right-wing critic on the proposition that wealth, once accumulated, can hardly stop itself accumulating more.
The outcome, argues Piketty, is unfair.
The fact that his message is resonating so deeply – since its publication in English in March, Piketty has been fêted by such influencial bodies as the US Economic Policy Institute and the White House Council of Economic Advisers, as well as being reviewed in all the top newspapers – suggests inequality may be an issue whose time has come.
Piketty argues, in Capital in the Twenty-First Century, that unless we’re happy with an elite class of oligarchs emerging everywhere over the next few decades, those who have enormous wealth must part with substantial chunks of it to make the world a fairer place.
For over-paid chief executives, he proposes an 80% tax rate.
For those sitting on an inherited pile, he proposes a sliding tax scale on total capital, starting well below 1% for small fortunes and running as high as 10% for those with hundreds of billions of dollars. Whether that would actually solve income and wealth inequality is unclear. Piketty himself admits it’s a Utopian pipedream.
But in the same way that Milton Friedman animated the tidal wave of neo-liberal economics that hit western economies in the 1980s, it’s just possible that Piketty’s tome will inspire political change in those countries with growing concerns about inequality.
The greatest challenge for both politicians and policymakers will be working out how to do that without killing the incentives that make it worthwhile for a small businessperson to take an idea and slave their guts out trying to turn it into a profitable enterprise.
For many entrepreneurs, the initial thrill is the game of establishing of a business that’s profitable at all, let alone one that could be worth a fortune or might attract a buyer. However, that thrill is balanced by long hours, rare holidays and family compromise that mean when the overnight success does finally arrive after 10 or 15 years of hard graft, the expectation of banking a fair pay-off is far from unreasonable.
That said, policy in response to popular anger has a tendency to overshoot its mark. Barring an outbreak of corporate generosity that sees senior executives volunteer to take lower base salaries, the political response to absurd remuneration is likely, when it finally arrives, to be punitive and undiscriminating.
The case needs to start being built now for a distinction between the truly entrepreneurial risk-takers who build businesses large and small, and the corporate ladder-climbers who, for all their ability as managers, may never put a dollar of their own on the line.
Described in some quarters as a 21st century Karl Marx, Thomas Piketty is not in fact arguing against the wealth-creating magic of “primitive” capitalism, as he calls it. If anything, his work is a wake-up call to those who believe the current approach will continue forever, ignoring popular discontent.
History shows that’s a dangerous assumption and that when change comes, it is swifter and more savage than the beneficiaries of the old order could ever have imagined. ⋅