A Review of Capital and Ideology by Thomas Piketty
After publishing his bestseller Le Capital au XXIe siècle (Capital in the Twenty-First Century on the economics of inequality, Piketty has turned to the sociology of inequality. His recent polemic, Capital et Idéologie (Capital and Ideology), opens with a clear challenge to the status quo: “every society must justify its inequalities.” What makes this book so timely is that Piketty is presenting a comprehensive case for democratic socialism right as it is taking young voters by storm. Though he views democratic decision-making with rose-colored glasses, Piketty makes a convincing case that our leaders should do more for those with less. Even if you do not support 21st century socialism, it is worth reading through the arguments in Capital and Ideology with an open—yet critical—mind.
Here is a brief summary of Piketty’s economic understanding of inequality: Inequality is a choice. Throughout history, elites have tried to justify inequality by claiming it is natural or that the status quo brings needed stability, but Piketty reveals these to be biased excuses shaped by self-interest. From 1914 to 1980, he argues that marginalized groups mobilized within social democratic parties to keep inequality in check and grow the economy equitably, but there has since been a “conservative revolution” resulting in weak growth and rife inequality. Piketty thinks this occurred because left-wing parties responded to globalization and failed communism by embracing meritocracy and trickle-down economics, two ideologies that make the less-educated working class feel left behind. To negate illiberal nativism on the right and bring back equitable growth, he counsels “participatory socialism” which restores sovereignty to the lower half of the social hierarchy.
The first half of Capital and Ideology explores inequality from the perspective of intellectual history. Piketty argues that reigning ideologies were often ad hoc excuses to benefit the ruling class in ancient regimes, slave societies, and colonialism. For instance, given the renewed interest in the US over reparations, it may come as a shock to most readers that past reparations in the UK and France were given to slaveholders to compensate them for their loss of “property.” Additionally, military power was often used to force exports into poorer countries in the name of “free” trade. Whether through slavery or colonialism, Piketty shows how elites have always come up with ideological justifications for extracting forced labor, sizable debts, and natural resources from the oppressed. If you read between the lines, you’ll begin wondering whether our reigning meritocratic ideology is similarly biased.
What Piketty rightfully demonstrates is that economic progress has not been a peaceful Smithian paradise of positive-sum interactions based on specialization and a growing division of labor. Instead, a lucid look at history emphasizes how economic outcomes are polluted by pervasive power imbalances, a topic conspicuously absent from economics textbooks. This recognition of zero-sum competition, bargaining, and coercion within the positive-sum potential of trade informs his critical perspective on inequality.
Much of Piketty’s book can be read as an empirical extension of Rawls’s A Theory of Justice. Rawls, in 1971, deliberately confined his political philosophy to the nation state in order to bypass murkey international externalities. Likewise, social democracies made little progress on global governance and were thus unprepared to cope with globalization and the weakening of labor relative to mobile capital. Moreover, reducing tax rates to attract and retain capital squeezed public spending on education and social insurance. As a corrective, Piketty confronts these externalities directly and champions international federations to manage global public goods and keep countries from undercutting each other’s tax rates. In his reading, had social democracies come up with these pacts in the past, we could have maintained “fiscal justice” and forestalled the conservative revolution.
Piketty conveniently leaves out that these neoliberal reforms were, in some ways, a direct consequence of overly generous postwar social democratic policies. The economist Vito Tanzi, in his book Governments versus Markets, has documented how rising public debt led many rich countries to reduce their public spending by the turn of the century. The ones that did not, including Greece, Italy, and Portugal, had the hardest time coping with the financial crisis. While Piketty rightfully identifies globalization as a cause of neoliberal reform, social democratic parties also contributed by promising unsustainable debts and entitlements in the first place.
Regardless of its cause, Piketty is rightfully concerned about the weakening of labor and the growth of monopsony power. As one solution among many, he proposes to expand the co-management practices developed in Nordic and Germanic societies under social democratic rule. Also termed “workplace democracy,” these practices let workers elect representatives to the board of directors in order to balance shareholder interests. It seems to have egalitarian effects like wage compression without compromising firm productivity, and countries like France, the UK, and the US are considering it in the wake of reduced unionization.
The case for co-management may not be this simple, though. For instance, if worker-controlled firms prevent offshoring and outsourcing, then will the global poor be kept from joining the world economy and escaping poverty? For all of its domestic drawbacks, relocating a firm in search of cheaper labor has the silver lining of enriching the most needy. Piketty himself acknowledges that uplifting the world’s poor and reducing global inequality should be priorities, but democratized workers might have other plans. In addition, while Piketty emphasizes “the benefits of collective deliberation,” there are costs as well. If workers are more risk averse, then they might veto risky proposals that have the potential to revolutionize industries and dramatically improve the world. If workers exhibit more temporal discounting, then they might neglect research and development spending: higher wages now, less investment for the future.
Beyond these core critiques, there are other uncertainties. How much representation do workers need in order to make a difference? Is a minority voice sufficient to change the board’s decisions, or should workers be given “decisive control,” as Piketty suggests? If worker-controlled decisions carry economic inefficiencies, might these be compensated by non-economic benefits like solidarity and autonomy? Only time will tell what works best given the various tradeoffs, but it is surely worth experimenting with some reforms to recoup the workers’ share of the economy.
It is also worth exploring Piketty’s emphasis on access to education. He aptly documents that in the sixties, less-educated voters were most likely to vote for social democratic parties. Over the next half century, however, Piketty finds that this trend reversed. Educated liberals joined the left, and the working class shifted right. While US experience suggests that less educated voters moved right in response to the civil rights movement, Piketty believes this cannot explain why the same trend occurred in France, the UK, Germany, Sweden, and Norway among others. Moreover, this “educational reversal” precedes the nativist anxieties that have recently infected these otherwise liberal countries. If social democratic parties found a way to share the cultural and economic benefits of higher education with the lower class, Piketty surmises, the Western world might have averted illiberal populism.
To win back the less educated workforce, Piketty proposes a norm of “educational justice.” This means giving every child equal educational funding, something that the US does a poor job of because schools are funded by local property taxes. It also means concentrating resources on early interventions where they make the most difference. Although he does not mention the worryingly high rates of college incompletion and underemployment, he recognizes that college is not for everyone and that apprenticeships and vocational training options should remain open. Moreover, he makes a fair point that students who choose less costly educational paths should be compensated with either retraining later in life or a simple cash transfer to jump start their career. This accords with findings that suggest much of higher education is a wasteful signaling contest. In sum, until these educational inequities are addressed, claims of meritocracy will continue to ring hollow.
Perhaps the most controversial part of Piketty’s case for participatory socialism is its attempt at a wholesale dilution of power, opting instead for democratic decision-making in all aspects of life. This includes co-management as mentioned above, but also extends to democracy vouchers for choosing political leaders, charity vouchers for funding philanthropy, and highly progressive taxes for ensuring circulation of property. It is easy to see how he arrives at this conclusion. Throughout history, people in power have found weak excuses to justify their privileges. If we want to ensure that inequalities are working for the benefit of the least fortunate, as Rawls and Piketty suggest, then the middle and lower classes should simply be given more control over which inequalities exist. The only inequalities that remain will be ones explicitly endorsed by the lower half of the social hierarchy. While this may seem like a far-out thought experiment, there are enough upcoming democratic socialists to justify thinking this through.
It is possible to respond to Piketty with classic remarks, that “relieving poverty matters more than reducing inequality,” or, “inequality stemming from free market competition is justified.” But these miss the point. Extreme inequality comes with the moral opportunity cost of not aiding the less affluent. Of course, to the extent that the rich are smartly investing in technologies that lift basic living standards, as the Gates foundation does with non-sewered sanitation systems and polio vaccines, their wealth is easily excused. Expenditure or investment in luxuries, however, is a different story. In this latter case, I think the most plausible rejoinder by any apologist for capital is that we need high incomes as an incentive for industriousness and productivity. This introduces a quandary, however, since political philosophers from Rawls to Hayek have used this same criterion to justify very different levels of inequality. While the optimal amount of inequality remains an open question, the fact that the upper class has chosen to work more hours over time rather than less suggests that they are mostly intrinsically motivated by things like status, competence, and curiosity. If this is correct, and steeper progressive taxes have minor effects on productivity, then we could justify living in a much more egalitarian society.
Capital and Ideology by Thomas Piketty, translated from French by Arthur Goldhammer
Publisher: Harvard University Press
$39.95, Available at Bookshop.
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