Thomas Piketty, of the Paris School of Economics, was dubbed the “rock star economist” after his book Capital in the 21st Century was published in 2014. It was remarkable that a 700-page economic tome on inequality became a world bestseller and was so widely discussed. Piketty’s key argument is that capital would grow faster than income from work, boosting inequality which was already rising.
Capital’s success was that it focused on inequality with such wide and deep historical and statistical analyses that it was convincing. For decades, most economists had not focused on inequality, naively assuming it would be addressed by growth. Piketty also made a strong case for active redistribution. Happily, his latest two books on the subject are very short, at 82 and 119 pages, and both are very readable.
Piketty begins Nature, Culture and Inequality by asking are there any such things as “natural occurring inequalities”? He examines the example of Sweden, one of the most equal societies for decades. Yet just over a century ago Sweden was a very unequal and stratified country, where only the richest 20 per cent of men, with property, could vote. Sweden was transformed in a short time after the Social Democrats got power in the 1930s. They embarked on a radical structural and political development of state capacities to ensure equity. Sweden became one of the most equal societies in the world under Social Democrat rule between 1932 and 1976. Piketty thus argues that political change can be swift, if those in power are effectively challenged.
Piketty demonstrates that there has been an uneven march towards greater equality in Europe. He shows that what he calls “the Great Redistribution” took place in Europe between 1913 and 1980, when there was a remarkable reduction in inequality in wealth in many countries. The Great Redistribution had a significant impact on reducing the disparity between the top 10 per cent and the next 40 per cent. Before 1913 the top 10 per cent owned a huge 90 per cent of wealth. The next 40 per cent had nothing in 1913. Now this 40 per cent of the population, the middle class, own 40 per cent of the total wealth in western Europe. They now have an average wealth of €200,000 per head.
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However, Piketty points out that “the Great Redistribution” of wealth “had practically no effect on the bottom 50 per cent”. The top 10 per cent still own 55 per cent of all wealth and the bottom 50 per cent still own almost nothing at 5 per cent.
On income inequality, there was a big movement towards greater equality over the past two centuries but especially in the 20th century. The share of income going to the richest 10 per cent fell from 50 per cent before 1913 to 30-35 per cent today and the share going to the poorest 50 per cent rose from 10-15 per cent to 20-25 per cent.
This book covers several significant aspects of inequality including a review of the deeply embedded inequality that colonialism threw up; it also analyses inequality of income and inequality of wealth, as well as gender inequality.
One of the most radical interventions against inequality has been the development of the welfare state; in increased public spending on pensions, on education and on healthcare. Spending on welfare, health and education are supported widely in most countries, including by the richest, who are willing to pay more in taxes. While educational spending increased tenfold from 1913, it has stagnated since the 1980s and 1990s. However, there still has been greater educational participation.
[ Piketty on Ireland: an Irish Times interview from 2014Opens in new window ]
Piketty is one of the world’s authorities on taxation, its history and its importance in reducing inequality. There is a short chapter on progressive taxation and how it has a big impact on inequality. He says the increasingly progressive tax system in Europe was a decisive factor in building the welfare state because it “provided a contractual basis for taxation that made the rising tax levels acceptable”. Indeed, Ireland is a good example of this. We have the highest market inequality in Europe, but this is alleviated by our tax and welfare system. Since the 1980s most European states total public spending is around 45-49 per cent of national income but in the unequal days before 1913 it was only 10 per cent for most countries.
Piketty demonstrates that most climate destruction is caused by the richest people in the world. The top 10 per cent produce 29 tonnes of carbon each, compared with the bottom 50 per cent who emit only five tonnes each. The sustainable level is two to three tonnes. The difficulty in addressing climate destruction is that the biggest destroyers of the planet are the most powerful. Unless they are faced down, they may not change despite the issue being existential – a threat to all life. The election of Donald Trump shows a passivity by many on the issue. Yet substantial progress has been made in recent years.
In a chapter on nature, Piketty concludes that “no credible solution to the challenge of global warming is imaginable without a drastic reduction in inequality ... first, because of the disparities in carbon emissions between countries and the global North and South and secondly because of the carbon inequalities within countries.”
Nature, Culture and Inequality is an excellent review of Piketty’s work on taxation and a great short general reader to inform people on the state of inequality in the world and why it matters so much. It has several charts, each well explained, giving the picture of extreme global wealth inequality by region. Piketty makes a great case for progressive taxation and indeed for taxation itself. As US judge, Wendel Holmes memorably said of tax, “I like to pay taxes. With them, I buy civilisation.”
Equality: What it Means and Why it Matters is based on a discussion between Piketty and Michael Sandel, professor of political philosophy at Harvard. It covers similar inequality issues in a discursive style. Both authors are highly critical of the way social democracy and progressive politics have failed to continue the redistribution, the progressive taxation and the improvement in public services since the 1980s. They call for a new social contract with a reversion to the high redistributive taxes that existed for much of the 20th century in the US and Europe. They regard social democracy as “frozen”, with educational spending at the same level as the 1990s. They are unambiguously the polar opposite to the Trump-Musk war on the state, on taxation, on regulation and on equality.
This book is critical of progressives Tony Blair, Bill Clinton and Gerhard Schroeder for failing to challenge “the market triumphalist premise – namely that market mechanisms are the primary instruments for defining and achieving the public good.” Piketty and Sandel discuss Sandel’s book The Tyranny of Merit, where he is highly critical of US and European progressives who argued that in the “age of merit” the solution to globalisation, inequality and deindustrialisation is education.
Sandel argues that they ditched the western working-class and its values, paving the way for Trump and rise of the European right. Sandel believes the liberal left’s pursuit of meritocracy has betrayed the working classes. He argues for a politics centred on dignity and solidarity.
Sandel points out that first there is no “level playing field”. Secondly and worse, he says that the centre-left elites implied that those who do not rise only have themselves to blame. The new centre left abandoned old class loyalties and solidarity and called on working-class individuals to get educated in order to face up to a globalised world.
Piketty also says in this book that “centre-left governments in recent decades have developed a religion of free trade, without any form of regulation, that has gone far too far”. He says it is total hypocrisy to allow the wealthy “the right to press a button to transfer vast sums of wealth to another jurisdiction” with no possibility of taxation, and then the government tells its citizens “that’s too bad we don’t know where the wealth is gone. There’s nothing we can do.”
They are highly critical of Clinton’s free-trade agreements, which transferred so many working-class jobs abroad without any form of regulation. The alternative of “managed” or regulated trade favoured by economists like Dani Rodik was and is still ignored. In a chapter on the future of the left, they focus on economics and identity, arguing that the left should not cede patriotism to the right and that people like to have a sense of place and of identity.
The world’s two richest men, Musk and Putin, a libertarian and statist, now have power over a very large part of the world’s population. Both are committed to inequality. Does this set back progress? Only for a short while, we hope, because today, most politicians are committed to greater equality, albeit with unequal levels of commitment.
Further reading
The State We are In: TASC Inequality Report 2024
Each year Tasc, the Irish think tank on equality, democracy and climate, publishes a report on the state of Ireland’s inequality, with a different theme each year.
Power and Progress: Our 1,000-year struggle over technology and Prosperity (Basic Books, 2023) by Daron Acemoglu and Simon Johnson
The 2024 Nobel winners in economics (with James Robinson) demonstrate that prosperity can either serve the narrow interests of an elite or give widespread prosperity. The word “power” in the title is the key to what has to be challenged effectively.
Global Inequality: a New Approach for the Age of Globalisation (Belknap Press, 2016) by Branco Milanovic
This important book shows that there has been great success in reducing worldwide inequality between states in recent decades (while inequality within states is rising again).
Paul Sweeney has written books on Ireland’s economy and public enterprise. He is on the board and policy committee of TASC
