Chinese Cities’ $1 Trillion-a-Year Piggy Bank
Local governments manipulate sales of land-use rights to industrial and residential developers to balance their budgets.Chinese Cities’ $1 Trillion-a-Year Piggy Bank
French economist Thomas Piketty is well-known for documenting inequality, with his best-selling 2013 book Capital in the Twenty-First Century having received numerous awards and accolades. His new book, A Brief History of Equality, is more optimistic: In it, Piketty documents how our world has become relatively more equal since the end of the 18th century.
In this unedited conversation, Piketty talks to Capitalisn’t hosts Bethany McLean and Luigi Zingales about the lessons from this movement toward equality and how that movement might proceed.
Thomas Piketty: I would say what I’m describing for the future is different from what we have today, but it’s not more different from what have today than what we have today is different from the capitalism of 1910.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: This is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: First of all, an apology and an explanation to our regular listeners. You might have noticed that my audio quality has improved dramatically. I’m trying, but there may still be the one thing I can’t fix, which is Doberman noise in the background, so I’ll apologize in advance for dog barking and snorting.
As our listeners know, on this podcast, we explore what’s working in capitalism and what isn’t. It’s hard to think of a guest who is more up our alley than Thomas Piketty.
Speaker 8: French political economist Thomas Piketty’s last work, Capital in the Twenty-First Century, wasn’t just a publishing phenomenon. It drew the world’s attention to the problem of growing inequality.
Bethany: In that book, which was almost 700 dense pages, he documented wealth inequality and argued that the gap between rich and poor would continue to get bigger. It was, in a word, pessimistic.
His latest book, which is called A Brief History of Equality, is indeed brief, at least relative to Capital. It weighs in at a mere 244 pages, and it’s actually optimistic.
He points out that the world actually has gotten better—a lot better. Piketty writes, “At least since the end of the 18th century, there has been a historical movement toward equality.” He points out that the human population and average income have both multiplied more than tenfold since the 18th century, and that the bottom 50 percent today have a much better life than they did a century ago.
Luigi: Piketty also argues that this movement toward equality contains some lessons for today. At the cost of oversimplifying, he proposes three recipes: taxes, taxes, and taxes. Just in case this is not enough, he also wants reparations: reparation in every form and every possibility.
Bethany: Yeah. I thought he was arguing for a pretty radical reconfiguration of our society, and I found a few of these graphs to be very representative of his views. He writes: “We have to move beyond the opposition to redistribution at a national level and redistribution at the international level. In particular, each country, each citizen on the planet, should have some part of the tax revenues derived from multinational companies and the world’s billionaires, because each human should have a minimal right to healthcare and education, and because rich countries’ prosperity depends on the poor.”
He goes on to say: “All creations of wealth in history have issued from a collective process. They depend on the international division of labor, the use of worldwide natural resources, and the accumulation of knowledge since the beginnings of humanity. Human societies constantly invent rules and institutions in order to structure themselves and to divide up wealth and power, but always on the basis of reversible political choices.”
Luigi: He also writes that all wealth is collective in origin, that private property was instituted or ought to be instituted—it’s not clear which one he chooses—only so far as it serves the common interest, to be defined, and in the context of a balanced set of institutions and rights, making it possible to limit individual accumulation to make power circulate and to distribute wealth more fairly.
“The fear of not knowing where to stop in such a political process is understandable. This fear, however, is a bad counselor, because in reality, there is no other option other than this political and institutional process.” These are his words. “Reparation and worldwide taxes will always be imperfect and provisional, but the alternative solutions are only incoherent constructs seeking to perpetuate injustices and positions of power that are without foundation.”
Bethany: Yeah. As I said, his book is interesting, because on the surface, A Brief History of Equality, you could take it as a defense of the direction of the world. And it is, in some ways, but the underlying argument, I thought at least, was quite radical.
Luigi: The book is, in my view, 40 percent historical, 40 percent advocacy, and 20 percent prophecy. The three are a little bit mixed, which makes it difficult to appreciate some of the things he’s saying that I think are very interesting.
Bethany: What part of it do you think is prophecy?
Luigi: The fact that we are bound to have a world that is always improving is prophecy. That sounds very Marxist in origin, that eventually there will be the end of history with a communist revolution or whatever, and it’s not based on fact. In fact, the funny thing is that he’s known in academia for his very good work on increasing income inequality, and here, he’s basically pushing this work on the side and saying, “No, no. This is just a blip in history, because the big arc of history is leaning in the right direction. We are living a blip, but this blip is second order. We need to look at the long one.”
Bethany: Did you think that? I thought he was arguing more that the movement toward equality was one we have since moved away from and that there was a danger in that. In other words, that the pretty radical reversal of tax policies since the 1980s was decimating this movement toward equality and that, therefore, we needed to get back to the taxation world, at least, of earlier in time, with some extra stuff in the form of reparations and inheritance taxes lobbed on top.
Luigi: Yeah. When he does the advocacy, certainly, he makes that point, but my impression is that when he describes the theological direction of history, he says that it is a one-way direction and has been a pretty continuous path. With some bumps, but a pretty continuous path.
Bethany: Let’s talk to Thomas and see what he has to say about his book, and then we will come back, and we will discuss it.
Your book is essentially optimistic in that you point out how much more equal the world has become, how life expectancy and wealth overall have grown dramatically. A devil’s-advocate question: Has that been enabled by some of the same forces that have magnified inequality? If reducing inequality also means reducing the broad-based standard of living, would you choose that? What’s more important?
Thomas Piketty: No, of course not. Of course, I would never choose that. Let me make clear. This is a book where I have tried to summarize some of the main lessons that I have learned in several big books I have written on the history of the distribution of income and wealth. By trying to be more concise, which I think is good sometimes, because with previous books . . . I don’t regret I wrote them, but they are very long. This one is much more concise, like 250 pages, and I think, most importantly, this forced me to clarify some of the main messages.
One of the main messages is that, historically, if you look between the end of the 18th century, which is the time of the French Revolution and the American Revolution, and today, so in the past 220, 240 years, there has been a very large movement toward more equality: more political equality, more economic equality, more social equality. This movement toward more equality has been very closely associated with a movement toward more prosperity. The two have come together historically, and that’s a big message.
This is the world in which we live, this is a world from which we have come from, and we really need to understand this trajectory. In particular, this movement begins with . . . Take the case of the French Revolution with the abolition of the privileges of the aristocracy. That’s one important turning point, and another important turning point is, of course, the slave revolt in Saint-Domingue in 1791, which sets the beginning of the end of slave and colonial societies. If you take these two events, you can see that on the one hand, you have the beginning of the end of societies based on privileges, based on status inequality, and you have the beginning of the end of societies based on slavery and colonialism.
Now, in these two dimensions, the movement has yet to continue, because this movement, of course, it does continue in the 19th century with the abolition of slavery and the rise of the labor movement, with the rise of female universal suffrage. It continued in the 20th century with the rise of female universal suffrage, with decolonization, the Civil Rights Movement, the end of apartheid, Social Security, progressive taxation, and it continues today with the #MeToo movement, with the Black Lives Matter movement. But this movement is not over yet, because we still live in societies where there are privileges.
There is the money, for instance, in the political process. We don’t have equal voice in the political process. You have some people who buy influence by political finance, or by paying media, or paying academics. There are so many things to buy when you want to buy influence, so we are still very far from anything close to real democracy.
When it comes to racial inequality and international inequality, we have made progress as compared to slavery and colonialism, but you can see the amount of discrimination, both within countries and enormous inequality between countries.
This is movement toward more equality, to answer your question, has been granted in political mobilization, social struggles, revolution, and it’s going to continue like this. I think that’s the good thing of studying history, is that this is the best guide we have to understand the next step, and there are so many directions in which this movement toward equality is still incomplete. You think of gender equality, racial equality, democratic rights, democratic equality, that I can see in which direction this movement could, should, and has already started to continue in the future.
Luigi: But of course, Thomas, there is a big different between inequality in rights—I think that everybody is against inequality in rights—versus inequality in outcomes. I think your book seems to take a stand, which is a very legitimate stand, but I want to understand that inequality in outcomes, besides inequality in rights, we all agree . . . inequality of outcomes is bad per se. I think that, at least I couldn’t read, up to what point?
Imagine that there are two societies and they both have the same minimum income. They only differ because one society has some people a little bit richer, and in the other society, everybody has the same income that is the bottom one. Do you prefer society two, the more equal, to society one or not?
Thomas Piketty: In terms of the same minimal income, it’s always better when some people have a higher income. But, again, historically, this is not the kind of choice that we have to make. When you talk about equal rights, and you say everybody agrees about equal rights, well, everybody agrees, except when it becomes concrete. When we talk about equal democratic rights, and if you want to have equal influence in elections, that would require a lot in terms of how you finance political campaigns, how you finance the media. We are very, very far from this equality in rights to influence the political process. I can give you a series of propositions to move in this direction, and you will see that the nice unanimity about equality of rights is going to disappear right away.
Let me take another example, which is very economic in nature, which is the redistribution of inheritance. We live in societies where we have made progress in the long run in terms of concentration of wealth, but this progress has been very limited. If you take the bottom 50 percent of children that basically receive close to zero inheritance. The share of the bottom 50 percent of the population in total wealth today in the United States is something like 2 percent. In Europe, it’s like 4 percent, which is better than 2 percent, but for 50 percent of the population, that’s very small.
Now, when you make a proposal, which I do, to try to move a little bit toward more equality of opportunities, more equality of rights, by saying, “OK, let’s have a minimum inheritance” . . . In my proposal, I say, “OK, it should be 120,000 euros, so 60 percent of the average wealth per adult that’s the age of 25,” so people who today receive zero . . . Basically, half of the population would receive 120,000.
People who today receive one million, which is roughly the average of the top 10 percent, after all the progressive taxes to pay for that, they would still receive 600,000. As you can see, we would still be very far from equality of opportunity. Very, very far. If you want my opinion, I think we could go a lot further in this direction.
But if you start making this kind of proposal, all the nice people who say they are in favor of equality of opportunity start shouting and saying, “Oh, but no, you cannot do something like that, because all these poor children, they are going to make stupid decisions with their money, so don’t give them money.”
As if rich children always make good decisions with the money they receive—which, by the way, I am very much ready to put limitations on what you can do with your money. We need rules, social rules. I don’t want to replace a society of greedy, wealthy children by a society of middle-class or poor children who are just as greedy. So, we need rules on what you can do with your wealth, but these rules need to apply to rich children as much as to poor children.
This is just an example saying that when you say we all agree about equal rights and equal opportunities, I’m not quite sure. I think if we are serious about equality of rights and equality of opportunities, which I’m trying to be serious about, you realize immediately that, in fact, many people disagree.
Bethany: I couldn’t quite tell, which may be my failure as a reader, from reading your book if you are a defender in a limited form of capitalism or not. It seems, in some ways, that you are, with your idea of progressive taxation, in your core belief in freedom, that you do believe in this core of capitalism, but later in the book you write that, “The objective is the gradual decommercialization of the economy. In particular, fundamental goods and services in domains such as education, healthcare, culture, transportation, or energy are, by nature, to be produced outside the commercial sphere,” and you exclude very small business and housing from that list.
My question is, why do we need this core of capitalism, and how do you determine what should be outside it? Why housing? Is the exclusion of small business then enough to create the desirable level of freedom?
Thomas Piketty: First of all, regarding decommodification and decommercialization, as an economic historian, I’m trying to look at the historical revolutions that I see in the data that I use, and then I’m trying to draw some sort of future, but I’m just looking at what I observe. What do we observe in practice? We do observe some gradual decommodification of the economy, in the sense that you observe the rise, as compared to 100 years ago or 150 years ago, you see the rise of enormous economic sectors—typically education and health, which are much bigger than, say, the automobile sector today in advanced countries—and they are going to keep growing in the future, of course, education and health.
These two sectors, to a large extent, have been organized outside the profit motive. This is obvious for education. We have some for-profit universities like Trump University, but they have not been terribly successful. Most private universities are nonprofit institutions, which is already a very different kind of object than the shareholder company trying to maximize profit.
If you take the case of health, I know there are some people in the US who believe that private health institutions in the US work very well, but if you look, frankly, I think anybody looking, comparing Europe and the US looking at health outcomes, looking at life expectancy, we should agree that, by and large, the public-health system has done a much better job historically to deliver good health. In terms of education, again, the countries that have tried profit-making primary schools and profit-making universities have just not been very successful.
There is a process of decommodification, in particular, in these two sectors, but you can talk about public transportation. You can talk about utilities, energy. We have to be very pragmatic and look sector by sector at how it can work.
I’m just saying, yes, there has been a process of decommodification. Yes, it has been extremely successful. Yes, we need to draw from this experience to think about the future, because if I look today at which sectors are going to expand in the future, I look education, at health, at corrections, the media, these are sectors where, again, the profit-making organizations do not always work very well, do not deliver.
Then, when you talk about other sectors, if I talk about a café or restaurant, it seems to me that the small producers competing with one another can work pretty well. The thing is that you have so many millions of different types of housing, unique types of people who have different preferences with this housing. In the end, there’s really a question of how much you gain because of the enormous heterogeneity in taste, in supply and demand. How much can you gain from the price mechanism and the market system, and how much do you lose because of an excessive reliance on the profit motive? In the case of education, the profit motive for a teacher seems to generate more harm than good. In some other sectors, it’s not the case. I’m trying to be very pragmatic and look at that.
Is this going beyond capitalism in the end or not? It depends how we define capitalism, but it seems to me that there are really three ingredients in what I put into this notion of participatory socialism or democratic socialism that I describe. You can choose another word to describe this. You can put it as social democracy for the 21st century, if you prefer, if you agree with these three ingredients.
Ingredient number one is this growing decommodification. Ingredient number two is the redistribution of wealth through minimum inheritance and through a very progressive wealth tax, which means very high concentration of wealth which, in my view, I’m not too sure . . . My reading of the history, comparing different periods, looking at the US in recent decades compared with the US before, trying to compare as much as I can all the different situations, I think excessive concentration of wealth is just not socially useful. Ingredient number two is very sharply progressive taxation of wealth in order to redistribute wealth so that everybody has access to 100,000, 200,000, 300,000 euros, which I think would make a big difference to make the society not only more equal but also more dynamic in terms of bargaining power.
People who have billions may not realize this, but when you have zero, having 100 or 200 or 300 is very different from zero. For people who have one billion, it all looks like zero, almost equal to zero, but when you really have zero or negative wealth, when you only have debt, you are in a very weak bargaining position vis-à-vis your own life, vis-à-vis the rest of society. Basically, it means you have to accept everything. You have to accept any working condition, any job. If you have just 100, 200, 300, in addition to a welfare system with basic income, free education, health—it’s not instead of all of that, of course, it’s in addition—then you are in a much better bargaining position, because this means you can refuse certain offers. You can create your own firm. You can buy your home for your family so that you don’t need to pay your rent each month. I think this will contribute to making society much more dynamic, and it will be collectively beneficial.
So, decommodification, redistribution of wealth. The third component is more equal sharing of power in companies. Again, I try to start from the historical experience with the codetermination or comanagement in countries like Sweden or Germany, where workers have up to 50 percent of seats on the board of large companies, and workers have these seats independently of any share in the company, just as workers, as investors in labor.
Now, shareholders have 50 percent plus one, but this means that if workers, in addition, have shares, so, 10 percent or 20 percent in the company, or if your local government or regional government has 10 percent or 20 percent in the company, then you can shift the majority, even with a shareholder that has 80 percent or 90 percent of the stock. Which, from the point of view of a US shareholder or, actually, a French shareholder or a British shareholder, is like communism, except that this has been in place in Germany since 1962, in Sweden since around the same time, and apparently, this is working.
I think, by and large, this has allowed to reach sometime more balanced decisions in boards of companies, so more reasonable wage scales, salary scales for top managers, for instance, but also, more importantly, to involve workers in the long-run strategy of the company, just because workers invest their skills, invest their life sometime, in companies much more than a short-run shareholder who goes and leaves, et cetera.
What I’m proposing, then, as the third component of what I call participatory socialism is to extend this to all countries, to all companies, small and large. And, if we want to go further, what I describe is to say, OK, the next step could be, if you have this 50 percent of voting rights for shareholders, well, within this 50 percent, an individual shareholder cannot have more than a certain threshold, 10 percent or 5 percent, when the company gets very large.
Again, the general philosophy is, we live in very educated societies where we have millions of engineers, technicians, workers, managers, who can contribute to decision making. This view of a sort of monarchical organization of the economy where one individual, because he made a smart decision at the age of 30 or was very lucky at the age of 30, or both at the same time, will keep all decision-making power at the age of 50, at the age of 70, at the age of 90 . . . In a huge organization with decisions that are so complicated to make, this is completely crazy. It seems as though the direction of history is to move toward more participatory decision making.
Anyway, if you put all of this together, you have something which is very different from standard capitalism. Again, the situation today, this kind of social-democratic capitalism that we have, in particular, in Western European countries, is already very different from the capitalism of 1910.
I will say what I’m describing for the future is different from what we have today, but it’s not more different from what we have today than what we have today is different from capitalism of 1910. I’m trying to look at this from an evolutionary perspective and based on the evolutions that have already been happening.
Luigi: I have a slightly different concern, because I actually understand that you are trying to find a different form of economic system that emphasizes freedom and maybe puts a little bit more weight on equality. I’m sympathetic to this desire.
My concern is to what extent you can achieve that with freedom. The examples of codetermination are all examples that are not chosen by the parties involved. You don’t see Silicon Valley firms starting with codetermination. This has been imposed by the law, and in particular circumstances, as you describe in your book.
My question is, is your ideal society, the one that you want to reach, a society that we can achieve with democracy, or do you want to abandon some of the features of, at least, the classical liberal democracy of majoritarian rules?
Let me quote from the end of your book. You say that “Equality has made its way, overturning the rules established by the regime in power,” I understand that, “and it’s an illusion to adopt unanimity of the countries and the social-group concerns as an untouchable principle.”
Do you consider that majority rule is one of these principles we can give up? If the majority of people don’t want that, what do you do? What do you do?
Thomas Piketty: Ah. Well, but here you refer to a quote with unanimity, and then you shift to majority, so it’s already a big change.
Luigi: No, no. Of course, it’s a change, but you are very clear that unanimity of social groups is not unanimity of people.
Thomas Piketty: Yes. OK, but let me answer. OK. You said Silicon Valley shareholders, they don’t want codetermination, so you’re going to take some of their freedom away if you impose codetermination. Yeah. I’m not too surprised that shareholders who have 100 percent of voting rights don’t want to share their power, but let me say—
Luigi: No, no. Sorry, Thomas. It’s not just the shareholders. If we create a company, we’re some managers creating a company, we can design a company where we give ourselves, managers, and maybe even employees equal voting rights, but we don’t choose to do that.
Thomas Piketty: No. OK, but you can also create a country where you and your associates have all the voting rights if you want. Many people have done that in the past. Look, it’s very understandable that some people want to keep the power for themselves. Aristocrats in France in 1799 wanted to keep the power for themselves, and I can see why. Look, if you—
Luigi: No, no, no. Sorry. Aristocrats in France were not competing with other stuff. Actually, they were competing with other countries, but companies are competing. If there is a more efficient organizational form—
Thomas Piketty: Well, this is a question that’s fit for democratic deliberation. That’s all I’m saying. Of course, I think I am much more democratic than you are, because I want to have really equal participation in the democratic process through political finance, media finance, et cetera.
Luigi: But you are restricting people to have that. You’re not allowing people to create companies different from the one you want. That’s not freedom.
Thomas Piketty: Look, you always have collective rules about how you organize, the rule of law. Can you discriminate against whomever you want in a company? Can you decide that some people don’t have any power and some people have full power?
Look, the notion of freedom you have in mind is so one-sided for certain individuals as compared to others. You have to look at the entire society and the freedom of everybody. It’s like the discussion we had with inheritance a minute ago. It’s good to care about the freedom of wealthy children, but I think the freedom of other children is important as well. If you want real, maximal freedom for all, which is what I want, you have to look at the big picture.
To answer your question of how we get there, I am completely confident that democratic deliberation through, of course, majority-rule decision making, but democracy is more than just majority-rule decision making. It also requires deliberation, which requires information, which requires a certain kind of financing of the media, financing of political campaigns. But I am very confident that this democratic system has led in the past and will continue to lead to more prosperity and more equality at the same time.
The current historically is that many groups have tried to keep the power for themselves. This is what has been happening. You have the French aristocrats in 1799, but then you have very wealthy people, until World War I, who don’t want to redistribute wealth, who say that the sky is going to fall if we redistribute wealth. Well, wealth was redistributed, it was much more equal in 1950 than what it was in 1910, and the sky did not fall. If anything, there was even more growth and more prosperity after that.
This is a movement where you always have powerful and wealthy people who don’t want to change, of course, who want to keep the power for themselves, and who try to present their position as based on freedom, and you want to attack freedom. No, nobody wants to attack freedom. The question is the freedom of whom.
We have to look at the rest of society as well, just like for inheritance. What’s crazy to me is to give no voice to the people who invest their labor in a company. That’s what’s completely insane to me. You have people who invest . . . it’s more than their labor. It’s their dreams, their skills, everything they have sometimes, for years, sometimes for decades, and then you’re telling me that shareholders must be free to give them no voice. Well, OK, but it’s like people who want to keep political power for themselves in a society, and this has been like that for a long time.
Remember, the imagination of a need to design rules in order to keep power is without any limit. The story that I tell in my book is the story of Sweden, which we today all see as very egalitarian, but until 1910 Sweden, only the top 20 percent of male voters had the right to vote, which is a very standard feature of European societies in the 19th century, except that in Sweden it was until 1910, and except that within this top-20 percent group, you could have between one and 100 votes, depending on the amount of tax you pay.
In municipal elections, there was actually no upper limit to the number of voting rights you could have, and even corporations could vote in municipal elections. Multinationals today, they would love to have this in the countries where they invest, where they could vote on the mayor of the city. Sometimes, they find other ways to get the same outcome, but at least they aren’t asking for that. This was freedom in 1910, and you had several dozen municipalities where a single voter had more than 50 percent of all voting rights, and it was perfectly legal.
From the point of view of these people, who are at the same time investing in companies, et cetera, this was perfectly justified, just like having all power in their companies. After all, they are the people who care about the future, because they have property.
I can write down with you the historical economic model that will rationalize this kind of system, and it’s very easy to do, except that this was broken by trade-union mobilization, social-democratic party mobilization, who took control of the state capacity in 1932 and put the state capacity to the service of a completely different project, where you would register income and wealth not to distribute more voting rights, but rather, to make people pay progressive taxation to pay for a system of education and health, which is not perfect. We’ve seen, with COVID, the limitations of our public-health system, but, still, it was better and is better than any other system we have seen since then. This has come, also, with the sharing of power in companies.
Be careful, I think, with this kind of discourse saying, “OK. Shareholders want to keep the power. Therefore, they should be able to keep it.” Well, no. If you look back at history and make this kind of argument, I think you really end up on the wrong side very quickly.
Bethany: I understand your arguments on employees, and I understand your arguments about taxation, but I thought that in other parts of the book, you were perhaps a little bit more vague when you talk about institutions that could enforce laws around equality or that could be responsible for managing wealth. How do you prevent these institutions from becoming totalitarian? How do you prevent them—
Thomas Piketty: Which ones?
Bethany: The other institutions that you mention in your book that you say would enforce a certain kind of egalitarian behavior.
Thomas Piketty: Like what?
Bethany: When you mention in your book, you talk about a balanced set of institutions that would help us create this more egalitarian world. How do you prevent those institutions from becoming bureaucratic and rigid, from becoming the things you fear?
Thomas Piketty: Yeah, I’m not sure which institutions you are referring to exactly. If we are just talking about the public-health system, or the public-education system, or a progressive-taxation system, my answer is let’s look at, again, these real-world experiences of how rich countries today . . . and if you take some of the countries in the world with highest levels of productivity, in Sweden or Germany or France, we’re trying to see how they got there.
I think the general lesson is, yes, you need democratic accountability, you need a pluralistic, vibrant democracy, you need all social groups and social classes to have a voice in the political system, you need all of these in order to put the checks and balances around this set of social and fiscal institutions. That’s for sure.
We need to make the entire democratic process much more democratic than it is today. This set of institutions is not supposed to be imposed from the top, and this is not what happened historically.
Luigi: Thomas, when I was a kid, I was sailing, and when I was sailing, even the most left-wing people would say, “In a boat, we need a commander, and it’s not a democracy.” There are moments in which, maybe because it’s very dramatic or . . . you need a different form of organization, and you’re saying that you don’t allow that. Imagine for a second, and maybe you don’t agree . . . imagine for a second that it’s more efficient to have a different type of organization where shareholders rule. You say you don’t want to do it because this is unfair, and you force everybody to have a democratic ship, even at the cost that the ship might sink.
Thomas Piketty: No, that’s not what I’m saying. I just think democracy works. Again, in the political arena, I think there’s a feeling that democracy works and should work, including in countries where it doesn’t work today, like China and Russia. Democracy is not just something that we do even if it fails. I think, in the end, there’s no reason why it should fail, because it does work in so many different countries with so many different cultures and civilizations. Of course, we need to be very careful about the exact rules on how we divide the power, but it works.
In the example of the boat you mention, let me make very clear that in the small companies, I have absolutely no problem with the fact that someone who created a company, who has put his savings, maybe his minimum inheritance, into creating his business, is going to have more power than someone you hired last week and who maybe is going to create his own business in one month. That would be stupid to equalize power between these two individuals in the small company, so I’m saying explicitly the contrary.
The question is, as the firm gets bigger, and as the firm gets bigger, yes, you want to discuss, you want to share power. How, exactly? What does it mean, get bigger? How big? Things get complicated when we say that, so that’s why I’m trying to look at the historical experience with 50 percent of the seats in the board of companies above a certain size, because my reading of the evidence is that it works pretty well. I propose to reduce the threshold, but I’m not saying I know the formula in advance.
I think we’re going to have to experiment. We’re going to have to try. That’s all I’m saying, but I think this is the direction in which we have to go for economic democracy, just like what we’ve done to some extent, or a limited extent, for political democracy.
Luigi: Thank you very much for your time. This was very interesting.
Bethany: Luigi and I had talked before this. We both had the same question, and we both tried to ask it. I wasn’t sure I really got an answer to it. What’s more important, overall progress, even if the gap between rich and poor gets bigger, or closing the gap? My devil’s advocate question was, can you have overall progress without inequality? If you can’t, is it worth it, or should the ultimate goal be ending inequality?
Luigi, did you think he answered that question or not?
Luigi: Not really. He did say that inequality is not an evil per se, when I asked point blank whether, everything else being equal, somebody making more is evil. However, he did not recognize, I think, the existence of any trade-off between more equality and maybe less efficiency or more tension. If equality is obtained through redistribution, it’s basically obtained through violence. Maybe organized violence, which is the state taxing you big time. He does not seem to be affected at all by how consequential this is for the survival of democratic institutions.
He’s very good at blaming the Soviet Union for going wrong, but it’s easy to do that more than 30 years after the fall of the Berlin Wall. What he’s not very good at, in my view, is recognizing the fact that if you exercise a lot of redistribution, there will be a lot of resistance, and that resistance, you can either squash it or stop the process. If it’s very important to achieve the goal, you’re going to squash it, and that’s exactly why the Soviet Union ended up as the Soviet Union, in the sense that Stalin did not start to kill all the kulaki for fun. He started to kill all the kulaki because the kulaki resisted the expropriation of land, and when they resisted, he said, “If you’re not in line with the program, I’ll send you to Siberia.”
Bethany: Yeah, this notion that the failure of the Soviet Revolution was because of the institutions that were put in place afterwards, not necessarily because of the revolution itself. When you look at other similar movements, whether it’s in Cuba or in China under Mao, or even, you could argue, in Venezuela today, they all go in the same direction: the people from whom what they had previously is being taken do not go quietly.
Luigi: Yeah, “do not go quietly” is a nice way to put it.
Bethany: Yes. Did you think that he addressed the question of what kind of institutions are necessary? I feel, by the way, that I didn’t do that point justice when we were talking to him. He talks about how we need to overturn inegalitarian institutions and established powers, but they do not, unfortunately, in any way guarantee that the new institutions and new powers that will replace them will always be as egalitarian and emancipatory as might have helped, which is true.
He writes, “It is much harder to agree on the alternative institutions that will make it possible to make real progress toward social, economic, and political equality, while at the same time respecting individual rights, including the right to be different,” and I thought, “Yeah, exactly. How do we agree on those alternative institutions?” That actually is one of the key issues in his book, to me, and you can’t just hand-wave at it.
Am I being too harsh?
Luigi: Yes and no, because I think that you are absolutely right that he doesn’t answer the question. However, I give him a lot of credit for raising a fundamental contradiction in our world economy. We’re all democratic within each country, but nobody wants to be democratic across countries. It’s not like there is any institution that says that the Indians and the Americans have one vote each, and they decide on the basis of one vote each—not to mention the Africans. It is a global order of power that is still very much shaped by the countries that won World War II, and many of the institutions that descended have tilted the world in favor of the old, if you want, Western powers.
Now, this has not prevented a country like China from rising in a fantastic way. However, it has been an obstacle. Most importantly, how do we go about fixing that? We don’t have a framework. Not only that, the existing frameworks go in the opposite direction.
He has a very insightful point in the book when he says, really, social democrats are lacking in international theory, because liberals have an international theory based on free movement of capital and labor, blah, blah, blah. Communists have an international theory saying that we’re all the same and the international communists, but the social democrats are really based on a welfare system that is at the local level and an aspiration of equality that is at the international level. The two conflict tremendously.
I think that a lot of the losses of social democrats in Europe have been due to the fact that they don’t know whether they want to remain internationalist, or they want to defend workers. The two seem in contradiction, and they’ve not chosen. As a result, they lose both, and very right-wing movements are actually defending the welfare state at the national level. Marine Le Pen, she’s more defendant of the welfare system than Emmanuel Macron.
I give him credit for having the courage to raise this question. I think that that’s a contradiction in all our thinking. I am guilty as charged on that, because we all are prodemocracy. Are we really happy to be prodemocracy where we all vote in the world and we decide, and we impose taxes, et cetera? Not so sure, right? I think we are fake in our support for democracy.
He goes all the way, and I give him some slack for not having figured out all the details, because nobody has, but I think that he’s more honest in pointing out this contradiction than most.
Bethany: What I couldn’t tell from his fundamental argument of basically stripping away the market from every sphere of life except for very small business and housing—I wasn’t sure why housing was included—but that’s a pretty extreme view, and I couldn’t necessarily tell from this book the proof for how he arrived there.
Why does it have to be this? Why only very small business and housing? Why are those the only things that should be in the commercial sphere, and everything else should be regulated by some kind of unnamed institution? I guess I would have felt a little more comfortable if there at least had been an analytical framework behind why commercial activity should be so tightly limited.
Luigi: The best line of argument in his favor is to say, I am concerned about precisely the political opposition to redistribution. What I need is to make sure that nobody is very powerful, because if somebody is very powerful, this economic power will transform itself into political power and will get into the way of my starting the revolution that I want to do.
I need to constrain most of the activities, because these activities can be very influential in determining how people vote and how they express their opinions, and so on, so forth. I want to basically have some form of control, whether it’s of “the people,” or of the government on all the institutions that carry some power, and I leave shopkeepers and small activities that are not really important to the free market, because I can crush them any time of the day.
Bethany: Even as you say that, you speak, “I am going to create this,” so who’s the “I” in this situation? Who’s the all-powerful entity that creates all of this and administers all of this and makes sure it’s being done effectively?
I know his argument would be if you set these institutions up correctly, they evolve, and they evolve in such a way that they don’t take on an undue amount of power, but to me, the devil is really in the details there. How do you create the institutions that are in charge of administering all of this and policing what’s in the free market and what isn’t, without those institutions themselves becoming exactly what you fear? It’s the old line from Nietzsche: be careful when you battle monsters, lest you become a monster.
Luigi: Yeah, and what is the evidence that even if we’re willing to impose limits on the power of money in the electoral process, which I’m much in favor of introducing . . . Even if we were to do that, what is the evidence that people will favor massive redistribution? I don’t think there is much evidence. In Germany, for example, or even in France, there are severe limitations on campaign financing. You don’t see massive demand for redistribution. If people don’t want this massive amount of redistribution, how do you decide?
Bethany: I found many aspects of the book quite revelatory, even this idea and the data showing how much of the wealth of the world has been generated from appropriation. I thought he has this great example in there of . . . and how countries have played the game one way until they have their advantages in place.
I thought he had a great example of how Britain basically wouldn’t allow imports of Indian textiles until Britain came to dominate the textile industry, and then Britain started advocating for free trade. I think we could find similar examples of hypocrisy throughout modern history, and that’s just one of the examples.
Luigi: Did you know the story that France imposed reparations on Haiti in the opposite direction? France imposed on the slaves that liberated themselves in Haiti the cost of buying their freedom that put a burden on Haiti that is enormous. It was 300 percent of GDP. You wonder to what extent Haiti’s problems today are the result of an enormous burden of public debt that made it difficult for the country to grow.
Bethany: I thought that was an incredibly powerful part of his book, and that’s the part of the book that I really liked, this very detailed, data-driven history about aspects of history that are often left unaddressed.
I thought he was also very powerful on the notion of education, that often in the days of empire, colonialization, you’d have the people of the country paying an enormous amount in taxes in order to educate the already . . . Then their taxes would go to educate the very wealthy, and you still see that disparity in education numbers, where the very wealthy get far more dollars thrown at their education than do the poor.
I thought something he said in our discussion was interesting, telling about his mindset but also quite right, which is that people talk a very big game about equity and about egalitarianism, but when it’s actually put to the test and they have to do something or give something up, they don’t particularly want to.
Nowhere is that more pronounced than with our children, where if you tell most wealthy people that their children’s schools are going to be funded at the same level as the poorest inner-city school, talk about a revolution, talk about people who are going to protest this new system. You’re going to get it right there. That, to me, is both a really powerful part of his book but also one that perhaps doesn’t bode well for a seamless transition to this future he is imagining.
I couldn’t tell in the end what he actually believed in terms of the right economic system. It sounded to me at various points in the book that he really does believe in a core of capitalism as necessary for freedom, and he writes this: “Everyone knows now that progress must emanate from egalitarian roots and electoral democracy. Acknowledgement of this fact in the 1970s and 1980s contributed to the final delegitimization of the communist countermodel. If the latter produces both less political freedom and less social and economic well-being, then what’s the point?”
In his view of the welfare state and of progressive taxation, I couldn’t tell what pieces he felt that we needed to retain and why he felt that we needed to retain those pieces. Did you have clarity on that?
Luigi: Complete clarity, no, but it seems to me that he has some form of Yugoslavian or Hungarian model. Even during the period of the Cold War, Hungary was much more open than the Soviet Union. For example, at least in the last 10 years of the existence of the bloc, you had some private property when it came to shops and little activities. Also, Yugoslavia was not as repressive as the Soviet Union, and they were more reliant on corporatism.
The question, to me, is how to interpret his push to interfere with free-market contracting. I agree with him that at some point, every regulation is interference, so if you take an extreme view, then you have zero regulation, which I’m not willing to take.
However, there is a risk of overshooting in the opposite direction. He seems to be saying that, except if you run a shop at the corner, the government needs to decide how you organize your company. That’s dangerous, because you can have an ethical company, where the government decides what is ethical and what is not ethical, and then you can work, but within the limits of what the government allows you to do in the name of some higher principles. I think that that’s where I am nervous.
I think that he doesn’t recognize trade-offs. Even when I confronted him with companies, in the sense that, do you really want a democracy at every level of the company? Imagine Walmart, which has 100,000 workers, most of them, these days, living outside of the United States. To what extent do you want to give them the power to decide the future of Walmart? There are some efficiency considerations that are quite important.
Bethany: Yeah. I agree with all of that. On that note, though, I did think he raised an interesting point when he pointed out Germany’s historic practices of employee representation on a board. I also think he raised an interesting point when he said, “Why did we decide on a system where shareholders get the money instead of employees?” I thought, “Hmm. That’s interesting.”
We’ve definitely decided on a system in which shareholders have primacy, legally, and then also the funders of the company do. Why shouldn’t employees have a right to the company’s profits above and beyond what they do? I thought that it was an interesting point.
Luigi: Sorry, can I stop you there? I disagree. We didn’t decide on that system, because there are cooperatives. Now, we have even public-benefit corporations, so we have different legal forms.
Bethany: That’s fair. We’re experimenting with different forms, I think.
Luigi: Yeah, but cooperatives have been around for a long time.
Bethany: But for a long time, the dominant form has been shareholder capitalism. In our ongoing quest to unpack things that are taken for granted, I think that’s an interesting thing to start contemplating, “Huh. Why is it that way? Does it have to be that way?” It ties into a lot of our themes.
I think, overall, there are enough interesting ideas in here that it’s worth reading and debating, but I think he leaves more questions unaddressed than answered, and in some ways, because, to me, those questions go to the very, very core of his system, that the book is ultimately unsatisfying. It is, I think you’re right, a political platform, and in just the ways that political platforms have appealing ideas without a lot of answers of how you get from A to B, this is similar.
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