Thomas Piketty and the Poverty of Inequality

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Nichols, Shaun S. “Thomas Piketty and the Poverty of Inequality.” Commentary on Thomas Piketty, “Capital in the Twenty First Century,” Presented at the Harvard Faculty Club, Harvard University, Cambridge, Massachusetts, March 6, 2015. Copy at https://tinyurl.com/y73baxrc
Thomas Piketty and the Poverty of Inequality

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Posted Online 7/15/2015

Shaun S. Nichols, “Thomas Piketty and the Poverty of Inequality,” Commentary on Thomas Piketty, Capital in the Twenty First Century, Presented at the Harvard Faculty Club, Harvard University, Cambridge, Massachusetts, March 6, 2015.

There is something that feels a bit phony about offering comments on Professor Piketty’s book, especially from a young student such as myself. First, it seems a bit insolent to comment on a book that, in such a very short time, has come to structure so much of contemporary debate in the field of political economy. Moreover, because so much praise and critique has already been offered on Capital in the Twenty First Century, it is a bit difficult to intervene in a conversation already brimming with minds much more acute than my own. So, with my time, I thought I would skip the traditional argumentative appraisal and critique and instead speculate on how I imagine Capital might (or might not) shed light on a few other issues beyond macroeconomic inequality.

Thus, although I will query certain aspects of Professor Piketty’s work, I would add the important caveat that I am doing so in perhaps the most unfair manner imaginable: by making him speak to questions and themes I do not imagine he had any intention of directly addressing. It is, however, the mark of a great book that it can be manhandled in such a way, so I offer these somewhat unfair critiques in a spirit of true admiration. So, with these comments, I would like to focus on three themes: poverty (rather than inequality), the geographic dynamics of capital accumulation, and labor’s role in the shaping of economic development.

First, I am curious how Professor Piketty might imagine his book would look different if it took poverty as its central focus, instead of inequality. Indeed, although inequality has certainly emerged as a rather disturbing phenomenon in the last thirty years, I often worry that it is in some sense a politically deadening preoccupation. After all, its enthronement as the central discourse of contemporary economic debate seems to implicitly suggest that poverty is no longer really the issue—that nobody is really poor, it’s just that some are too rich—and that the problem is that the middle class is being squeezed, rather than the working class being crushed.

In particular (to bring the discussion back to our guest of honor), I am curious to what extent a global tax on capital and income—the central policy innovation offered in Capital—could actually impact poverty in any significant way without other, complementary reforms. Indeed, although it is mathematically undeniable that state confiscation of some percentage of the annual return on capital would de facto diminish statistical inequality—after all, the capital-labor ratio would, by necessity, have to shift slightly out of capital’s favor—it is not entirely clear to me how taxing Howard Schultz on his capital holdings would put more money into my local Starbucks barista’s pocket—or how making the Harvard Corporation pay 2 percent annually on its massive endowment would finally get us graduate students the three years of guaranteed teaching we’ve been complaining about for some years. Piketty’s book, in my mind, makes an excellent case for how a global tax on capital would hold back the forces of raw, statistical inequality. But I find it a bit less forthcoming in explicating how these same reforms would make any difference in another type of problem: namely, impoverishment.

Of course, there is no shortage of ways in which we could imagine a state, its coffers now flush with tax dollars from its newly instituted capital taxes, could redirect that money towards eliminating poverty altogether (flat out income redistribution being the most obvious). But Capital, for all it does accomplish, has little to say about exactly what form such redistribution might take.

Perhaps this is not surprising: as any neoclassical economist might object, a higher capital tax rate paired with a concomitant redistribution of wealth to the lower rungs of society would be ineffectual, as business owners would simply respond by slashing wages to stabilize profits, and the whole system would rebalance and end up looking like what we have now. Piketty himself thus seems to suggest this new tax money would best be spent strengthening the provision of the social welfare functions we all know and love: investing in education, healthcare, and technology. Yet, in themselves, such investments would not directly improve the material condition of workers; in fact, their primary contribution would seem to be in spurring the economic growth rate. This puzzles me, as it is a sort of ironic conclusion for a book that is primarily about accommodating our inevitable return to low-growth development.

In a strange way, then, it seems that the policy innovations offered in Capital actually boil down into pro-growth policies in disguise—the redirection of capital wealth into sectors that might better contribute to overall output growth. Yet pro-growth policies are not necessarily anti-poverty—a point that nicely brings me to the second major topic I would love Piketty to speak to: namely, the historical shape and global dynamics of capitalist development.   

Indeed, I wonder: how might Piketty’s history of economic development and inequality (as well as his prescriptions for their future) look different if centered more firmly on the geography of capital accumulation. After all, I sometimes worry that, by relying on generalized national and global aggregate statistics, Piketty paints a somewhat too tidy picture of capitalist “growth” over the past two centuries. As someone who has now spent perhaps too many years studying how the economy of southeastern industrial core of Massachusetts was created and destroyed over and over again throughout the last two centuries—besieged and begot by the relentless global scrambling of capital, labor, and industry—it is hard for me to see Piketty’s vision of industrialization as a gently sloping upward curve of increasing global productivity (followed by an eventual downward slope) as representative of how most folks experienced these phenomena.

As Sven Beckert’s recent work on the global cotton textile industry has perhaps best shown, even in this vanguard sector, we see how the “cheap labor” fifteenth-century German cotton industry displaced Italian cotton producers only to be superseded by the British in the eighteenth century—who eventually toppled (and devastated) Indian textile producers. Thus, even the first glimmerings of the “industrial revolution” worldwide look little like an endogenous “productive boom.” Not only, then, has a rising tide historically not lifted all boats, as Piketty so adroitly shows—but more fundamentally, some have succeeded precisely because others have lost out.

Aggregate growth, as I know Professor Piketty agrees, often masks far messier realities in which losses and gains are distributed unevenly and arbitrarily over geographic space and across economic sectors. I think this was the case throughout the industrial revolution, and I expect it will continue to be the case into the twenty first century. And just as I worry Piketty’s historical account perhaps too smoothly tames this tumultuous process, I also worry that his policy prescriptions may be insufficient as well.

Again, thinking to my own research on the continuous global restructuring and ultimate impoverishment of the South Coast of Massachusetts, it’s hard to imagine how a high, confiscatory tax policy—or even sustained aggregate growth—would have stopped the scourge of capital mobility that has been so damaging to these so-called “rust belt” economies. After all, although the animus of capital mobility has historically been the search for higher returns on capital elsewhere, its primary manifestation has generally been in the search for cheaper labor, a subject to which I now turn.

Thus, my final question concerns what place labor might have in Piketty’s account of the future of the global economy. Much of the book, as you are all likely aware, centers on the claim that one of the fundamental laws of capitalism is the tendency for “r” to outpace “g”: in other words, the tendency for the return on capital to be “higher…than the rate of growth of income and output.” Over time, Piketty writes, “wealth accumulated in the past grows more rapidly…The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. The past devours the future.”

But this contradiction seems more a matter of lopsided bargaining power than a structural facet of capitalism itself. [In making this critique, I of course echo many other scholars. For instance, see Samuel Moyn and David Harvey] Indeed, in our own discussions here within this seminar—analyzing the history, politics, and economics of capitalist development—we have often seen how transient political and social arrangements masquerade as “natural” laws of capitalism. Might this be true of the law of “r” outracing “g” as well? Indeed, it was not merely high growth that helped national output keep pace of capital returns in the mid-twentieth century; after all, this was a moment in which union density and working-class power peaked in many nations around the world. Yes, the pie got bigger; but workers got a bigger piece precisely because they mobilized and demanded it.

What Piketty offers in Capital is a beautifully nuanced portrait of how big data can be used to gain some real empirical leverage on the long-term dynamics of capitalist growth. His policy prescriptions are both admirable and difficult to discount; and it is quite clear that they would certainly have a salutary effect on the broad structures of inequality. But, I worry that without a clear concept of how these policies would materially benefit the poorest in society—and how we might overcome the fact that capitalist growth has historically been riddled with winners and losers spread over space and across economic sectors—it seems a somewhat incomplete portrait of the current state (and fate) of capitalist society. Merely constraining the rate of capital return is, I think, too little too late.

But one book cannot do everything. As such, I think we should take Capital as, above all, a challenge to all of us: we are indebted to Professor Piketty for using his data to make clear that there is indeed a great problem to be overcome—but I see his work as just the beginning: an opening for more discussion and further political experimentation—which is exactly how I imagine he intended it. For myself, I remain convinced that until policies are also implemented to give the most vulnerable in society the power to challenge prevailing economic distributions—be it through mass unionization, a vast increase in the minimum wage, or a stringent set of global labor standards—the substance, if not the appearance, of inequality will remain much the same.

Last updated on 07/28/2015