Capital in the Twenty-First Century
Harvard University Press
Rs 825, PP 599
No recent treatise on economics has generated as much worldwide debate as Thomas Piketty’s Capital in the Twenty-First Century. By inequality, the French economist means a lack of equal opportunities. Everywhere, even in the People’s Republic of China, ruled by the Communist Party of China, there is a fundamental inequality of opportunity at the heart of the mechanism for economic growth whose aim should be the rational allocation of resources and income. In China, Piketty noted, “Inequality increased very rapidly following the liberalization of the economy in the 1980s”. So that’s the media-hyped success story of reform although, since the mid-1990s, the International Labour Organisation has been cautioning that the Fund-Bank model of ‘structural adjustment’ paves way for ‘jobless growth’. While Paul Krugman has hailed Piketty’s 685-page work as “the unified field theory of inequality”, others, including some French Marxist economists, have been very critical.
The author, whom The Economist banteringly called ‘greater than Marx’ and the closest thing to a pop-culture sensation in heavyweight economics on the past and future of inequality, has focused on the transitional phase from a “society of rentiers to a society of managers”. The book’s chapters deal with the metamorphosis of capital, the capital-labour split in the present century, inequality and concentration, inequality of labour income, inequality of capital ownership, and the social state for this century. All this is in the run-up to Piketty’s theoretical inference that a global tax on capital is the prescription for the drastic reduction of inequalities. He suggests that it is necessary to avoid the “endless inegalitarian spiral” and to exercise control over the “dynamics of accumulation”. Taxes on income have failed to checkmate the obscene growth of inequality, which is why inequality has been aggravated under neo-liberalism. Piketty has rightly inferred that Chinese inequality has increased very rapidly following the liberalisation of the economy.
Piketty has paid a genuine tribute to Simon Kuznets (and of course to Ricardo and Marx, although Kuznets’ position was the opposite of the former) who formulated the famous Inverted-U Hypothesis, enunciating that economic inequality rises and then inevitably falls in the course of economic development. The author defined the hypothesis and the analysis thereof as “the very first attempt to measure social inequality” but found a hole there as its “empirical underpinnings were extremely fragile”. However, one has to note, as Debraj Ray did in a critical appreciation of Piketty’s work, that Kuznets’s world has almost disappeared in the last five decades. Agriculture was much more prominent in Kuznets’ time.
Of the three fundamental laws formulated by Piketty, the third about the central contradiction of capitalism is the most important: the rate of return on capital systematically surpasses the overall rate of growth of income. Ray praises him but points out that ‘the rate of return on capital tracks the level of capital income, and not its growth.’
(Sankar Ray is an analyst on the environment and Left politics. He lives in Kolkata)