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The Inequality EngineGeoff Mann
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Vol. 42 No. 11 · 4 June 2020

The Inequality Engine

Geoff Mann

4257 words
Capital and Ideology 
by Thomas Piketty, translated by Arthur Goldhammer.
Harvard, 1150 pp., £31.95, March, 978 0 674 98082 2
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WithParis still vibrating in the aftermath of the Commune, Emile Boutmy and a group of intellectuals founded the École Libre des Sciences Politiques in 1872. The school was a direct response to the Commune, to France’s humiliation in the Franco-Prussian War, and to a sense that its ruling class was bereft of talent, industry and imagination, its imperial and cultural mission a shambles. The university now known as Sciences Po was established as a new ‘crossroads of the ruling classes’.

Boutmy was worried, no doubt, about the collapse of France’s international standing, but his fundamental concern was to secure the place of the elite at the helm of history. Even if the belief that this class was born to command was no longer defensible, this didn’t mean that the nation’s fate could be left to the masses:

Obliged to submit to the rule of the majority, the classes that call themselves the upper classes can preserve their political hegemony only by invoking the rights of the most capable. As traditional upper-class prerogatives crumble, the wave of democracy will encounter a second rampart, built on eminently useful talents, superiority that commands prestige, and abilities of which society cannot sanely deprive itself.

Thomas Piketty quotes Boutmy’s proposition in Capital in the 21st Century (2013), the bestseller that made him a household name among today’s intellectual and business elite. According to Piketty – and it is hard to disagree – this ‘incredible statement’ illustrates the way ‘the upper classes instinctively abandoned idleness and invented meritocracy lest universal suffrage deprive them of everything they owned’. It is proof of ‘an essential truth: defining the meaning of inequality and justifying the position of the winners is a matter of vital importance.’

Capital in the 21st Century, however, had very little to say about this ‘essential truth’, which we might call the problem of legitimacy. Instead, it provided an exhaustive description of the evolution of income and wealth inequality in industrialised countries over the last two hundred years. Its main point was that a tendency to increasing inequality is baked into capitalism. The greater equality of the golden age of growth after the Second World War, for which so many remain nostalgic, shouldn’t be regarded as proof of what capitalism can do when it really gets going, but as a historical exception. World wars, communist revolution and the Great Depression simultaneously destroyed the property of the barons of the Belle Époque and shocked policymakers and the wealthy into a programme of redistribution that would have been unthinkable before 1914. By the late 1970s, however, capitalists had pulled themselves together, and with the help of governments across the world, arranged for a return to normal. Since then, what Piketty calls the ‘social state’ has gone into retreat, income and wealth taxes have plummeted or disappeared altogether, financial wealth has skyrocketed, and the 1 per cent have retaken the commanding heights of the global economy.

Piketty’s follow-up, Capital and Ideology, is a massive, globe and history-spanning attempt to figure out what’s inside the ‘black box’ that Capital in the 21st Century left unexamined. What makes it possible for inequality to persist, let alone get worse? Why don’t governments do anything about it? And since they so often don’t, why doesn’t runaway inequality provoke the mass resistance that might force them to?

Even the financial mess that began in 2007-8 passed with barely a grumble, at least at the level of policy. It only briefly troubled the rich, who quickly restarted the inequality engine. Taxes on the wealthy today are even lower than they were before the subprime crisis. The recession associated with the coronavirus has changed the picture, at least temporarily, but before the global lockdown started, asset prices were higher than ever, the stock market booming. Since 2008 no financier has had to return any ill-gotten gains. No one was punished for the elaborate financial contortions that devastated the global economy, emptied state treasuries and created a public debt crisis that has crushed working people and the poor, and will hang over the heads of their children and grandchildren. Covid-19 has obviously made this situation much worse.

You would expect the ‘inequality regime’ in which this crisis is unfolding to pose some tricky political problems. In the United States, for example, an average member of the richest 1 per cent now receives more than eighty times as much income, and owns 950 times as much wealth, as an average member of the bottom 50 per cent. On the face of it, this degree of inequality seems very difficult to justify, and one might see the mass support for Bernie Sanders, Jeremy Corbyn or Podemos in Spain (which Piketty has advised), as an indication that its legitimacy is indeed in question. But the task of justifying inequality isn’t just a problem for what Piketty calls our ‘hypercapitalist’ era. All societies have an inequality regime that must be justified somehow, or else the society will be vulnerable. According to Piketty, history demonstrates that the means deployed to address the problem of legitimacy are only ever partly material (redistribution of wealth, for example, or coercive control of those on the bottom rungs of the ladder). The more important means are ideological: at the very least, society’s inequalities have to make sense to people, to seem reasonable or even natural.

When ‘mainstream’ economists start talking about ideology, it is almost always used as a pejorative term. Ideology is the cloud that opponents of free markets have their heads in, or the belief that socialism could ever work, when in reality it would of course ‘disincentivise effort and innovation and substantially reduce the quantity and quality of a nation’s output’ (as Donald Trump’s Council of Economic Advisers put it in an October 2018 report, ‘The Opportunity Costs of Socialism’). This is the same ‘logic’ that Senator Lindsey Graham trotted out to argue against income support for US nurses in the midst of the coronavirus meltdown.

But Piketty is not a run-of-the-mill economist. He has no time, he said in an interview in 2015, for economists’ pseudo-scientific ‘hymn to entrepreneurship and well-deserved fortunes’. In their deluded belief that they are the only ones who can see past the distortions of politics and culture, they are the true ideologues. His need to write a second thousand-page book to analyse the ideological dynamics behind the story he told in his first book comes from somewhere other than a desire to convince his fellow economists.

The trouble with ‘taking ideology seriously’, as Piketty puts it, is that if you aren’t careful, it can easily become the explanation for everything. Ideology is an inflationary concept: it tends quite quickly to take up all the analytical space, so that the only way to get a handle on it is to claim to occupy some space outside it – which, if we take ideology seriously, is by definition impossible. Piketty knows full well the concept isn’t straightforward, and wants to define it from the off. ‘I use “ideology”,’ he writes in the first few pages, ‘in a positive and constructive sense to refer to a set of a priori plausible ideas and discourses describing how society should be structured.’ This is useful, certainly. Ideology is always a matter of what gets called common sense, the relationships or institutions that are taken as given, natural or necessary. Every time someone says ‘of course’ or ‘realistically’ they touch on it. Ideology is not a set of ‘ideas and discourses’, important as those are. It is the worldview that makes those ideas and discourses seem reasonable, or ‘a priori plausible’. Adorno once said that ‘if the lion had a consciousness his rage at the antelope he wants to eat would be ideology.’ Ideology is what makes the lion mad, not what he hunts in his madness. It is one thing to describe what was normal or obvious in a given time and place, such as the ‘naturalness’ of slavery in 18th-century Europe. But it is another thing to try and figure out what makes the normal or obvious seem so.

Piketty’s approach to the problem of legitimacy is more instrumental, more functional and more ‘rational’ than a critique of ideology would allow. What makes the lion mad isn’t something the lion or anyone else has decided; and it isn’t something the lion or anyone else can carefully ‘revise’ – ideology is too sedimented to be susceptible to design. Yet, like Boutmy’s plan to invent meritocracy, the ideas and discourses discussed in Capital and Ideology are often framed as the products of decisions and choices. They are self-interested projects, projects that can fail. Piketty’s analysis of an extraordinary range of inequality regimes – from what he calls ‘ternary’ or ‘trifunctional’ societies (feudal, in a broad sense, composed of clergy, warrior/nobility and commoner classes) to revolutionary Haiti, contemporary India, France, the US and more – is really a study of the way different societies experience inequality: how the wealthy have tried to perpetuate it, how the less wealthy have tried to challenge it, and what those experiences might have to teach us about tackling inequality today.

Piketty hopes the book will encourage a peaceful, policy-driven revolution leading to ‘participatory socialism’. It culminates in a careful proposal for global co-operation on progressive taxation of wealth, income and carbon, a universal capital endowment and massive reinvestment in education. The book is packed with fascinating detail and vast quantities of skilfully assembled data; it is written (and translated, by Arthur Goldhammer) in an accessible, conversational tone. But Piketty’s vital contribution is somewhat obscured by the book’s title. He is not in the business of uncovering the ideological dynamics that make the interests of the powerful appear to coincide with everyone’s general interest – what Boutmy called ‘political hegemony’ – or in explaining the way they have historically operated. Instead, he gives us a systematic examination of inequality across time and place, and of the ideas the powerful have used to justify it. If there is a theme that ties these diverse histories together, it is the thing most economists would have expected all along: self-interest. We learn a good deal about the lengths to which the powerful will go to assert their privilege (and the often outrageous injustice this entails), and about the only things that have ever thwarted them: mass violence and progressive taxation.

It is no exaggeration​ to say that, for Piketty, taxation is the key both to understanding the history of modern civilisations and to shaping their futures. Capital and Ideology comes close to proposing what amounts to a tax theory of history: a three-stage periodisation of global modernity – from ‘proprietarian’ to ‘social democratic’ to ‘neo-proprietarian’ – organised around the ways societies have or have not been able to justify and impose ‘fiscal pressure’ on their citizens and others, and the kinds of political, territorial and property regime that power secured.

Before the rise of territorial nation-states, the vast inequalities of the trifunctional societies of medieval Japan or Europe were premodern by definition, organised in decentralised hierarchical systems of tribute in which property and political regimes were one and the same. The modern state emerged from these societies through and because of taxation, in ‘two great leaps forward’: first, between 1500 and 1800, with the capacity to increase taxes from 1 or 2 per cent (sufficient only to support the coercive functions of the nightwatchman state) to between 6 and 8 per cent; and, second, between 1910 and 1980, when rich countries’ tax rates rose from 8-10 per cent to 30-50 per cent. (If you surmise that Piketty thinks we are currently taking a great leap backward, you are right.)

The later part of the first great leap forward effectively marked the end of trifunctional society, in the ‘great demarcation’ of 1789 (a term Piketty borrows from Rafe Blaufarb’s book of 2016). The French Revolution drew a line between premodern trifunctionalism and the first phase of the modern age, with the development of what Piketty calls ‘proprietarian’ societies (‘ownership societies’ in Goldhammer’s translation). Proprietarianism, which characterised Europe and North America until the First World War (and, in the form of colonialism, had immense and devastating implications for the rest of the world), was marked not only by the efforts of elites to construct Boutmy’s ‘rampart’ of meritocracy, but also by great changes to political and property regimes.

Two of these changes are vital to Piketty’s account. First, there emerged an increasingly strict separation between property rights (supposedly open to all without state interference) and ‘regalian’ powers (security, justice and the legitimate use of violence, which became the prerogative of the state). Second, and following directly, proprietarian societies ‘sacralised’ property, and in the process also sacralised the debtor’s obligation to the creditor. If property is inviolable, so is the duty to pay the owner for the use or acquisition of their property.

In retrospect, it may seem that, despite their origins, neither development was particularly revolutionary. Hannah Arendt thought Robespierre was Marx’s ‘teacher in revolution’, but on the question of property, at least, the French revolutionaries were far from being Marxists – Robespierre defended private property rights all the way to the guillotine, and denounced equality of ownership as a ‘chimera’. But the proprietarian order of Europe’s long 19th century emerged in a period that saw a host of other contradictory developments. The Bastille and the Terror may be the first things the French Revolution brings to mind, but it began – and ended – with a distinctly bourgeois flourish. Piketty’s ‘ownership society’ was possible at least in part because the radical impulses of 1789 were suppressed in the post-revolutionary reaction across Europe. In the end it took more than a hundred years for the bottled-up antagonisms caused by rising inequality and industrial alienation to destroy proprietarianism.

The millions who had been marginalised by liberal imperialism did this not just by violent means, but by making use of an idea that had found its first full expression in the French Revolution. Progressive taxation had been a subject of interest well before the storming of the Bastille. Rousseau put the question of taxation at the centre of political life in 1755 in both the Discourse on the Origins of Inequality and his contribution to Diderot’s Encyclopédie, ‘Economie ou Oeconomie (Morale et Politique)’. Property had destroyed humanity’s ‘natural’ equality, he argued, and some means of proportionate redistribution was essential to the maintenance of peaceful life in common. Better developed proposals followed – most famously from the Marquis de Condorcet, found dead in his cell after opposing the Jacobin constitution – and on 18 March 1793, two months after the execution of Louis XVI, the revolutionary National Convention formally adopted progressive taxation. The Thermidorian reaction and the rise of Napoleon – essentially, the process of deradicalisation – quickly led to the repeal of the tax, but the idea came to play a crucial role in the destruction of the 19th-century ownership society. (This was true especially, if not only, in Britain. Pitt introduced a graduated income tax in 1799 with little thought of structural inequality, but to pay for the Napoleonic Wars. When the tax was reintroduced and made permanent in 1843, however, part of its purpose was to secure political stability – a function that would be essential to the management of the crises of the 20th century.)

Piketty’s account of the proprietarian order is a devastating indictment of racist imperialism and class war in Europe and – usually by way of Europe – around the world, supported at every point by an array of data and graphs. Much of that story is well known, some of it less so, such as the extraordinary political-economic effects of the end of slavery and serfdom. In sharp contrast to the mythology of enlightened European abolitionism, the emancipatory aspects of 19th-century ownership societies weren’t a product of the moral triumph of liberal commitments to self-ownership, or of ‘freedom’ in the markets. In almost all cases – French and British slave traders and plantation owners, Russian landlords, the Brazilian landed elite – those who lost human ‘property’ were treated with deference and handsomely compensated.

In other words, in perfect harmony with the proprietarian moral code, the lord’s property remained sacred even in its nominal emancipation. Former slaves were framed as ‘debtors’ in hock to their former captors for services they would no longer render, in many cases forced to repay their ex-owners for lending them the rest of their lives. Saint-Domingue, where slavery was abolished in 1793, was arguably the only French dominion in which the 1789 Declaration of the Rights of Man and of the Citizen was implemented. It declared its independence as Haiti in 1804. In 1825, as reparation for the insolence of freedom, France obliged the new nation to transfer to the French state and former plantation owners ‘the equivalent of 15 per cent of its national product every year, indefinitely, simply to pay the interest on the debt without even beginning to pay down the principal’. Haiti was still paying in the 1950s, when the debt was finally cancelled. But by then it had been devastated by vicious postcolonial political and economic forces.

This is only the most startling example of a dynamic that began with capitalist proprietarianism and continues today in our ‘neo-proprietarian’ age. Throughout the age of emancipation, states incurred enormous debts compensating the beneficiaries of domestic and colonial slavery – the richest and most powerful property owners of the day – and in the process indebted both former slaves and the propertyless masses. Today, as Piketty repeatedly notes, something similar is happening, as both rich and poor states impoverish themselves by cutting taxes and liberalising trade, then cut social support and borrow – from the wealthy – to cover the costs. The rich never lose, even when they appear to have lost, and the past haunts only the poor.

Proprietarianism began to have difficulties between 1914 and 1945, as inequality within European nations was attacked from the left; inequality between countries was threatened by challenges to the colonial order; and there was ‘a nationalist and identitarian challenge’ in the form of increased intra-European competition and the wars and fascisms it spawned. The ‘social democratic’ recovery separates the proprietarian from the neo-proprietarian era: the interval between 1945 and 1980 involved the only significant historical reversal of capitalism’s inequality machine.

For Piketty, ‘social democracy’ is a loose term. It includes virtually everything we might associate with the welfare state, from arrangements as ‘left-wing’ as the redistribution mobilised by the Nordic states in the 1960s and 1970s or the postwar Italian Communist Party, to the ‘centrism’ of the Kennedy tax cut of 1964 or Lyndon Johnson’s war on poverty. Using such a broad definition makes some sense, since it highlights commonalities between otherwise quite different political and economic policy frameworks in the wealthiest parts of the world after 1945. The drawback, however, is that it papers over substantial differences, especially to do with social democracy’s relation to capitalism. Piketty sees the two, if not as contradictory, then as almost mutually exclusive: after the Second World War, some countries ‘remained nominally capitalist but were actually turning social democratic’. The real goal of social democratic society, he says, was ‘transcending private property and capitalism’.

This is an exaggeration, to put it mildly. There can be little doubt that the power of property – capital – was drastically reduced in the first half of the 20th century, or that some post-1945 states worked hard to keep it that way, especially by emphasising a ‘more social and instrumental concept of property, according to which the purpose of productive capital was to further the cause of economic development, social justice, and/or national independence’. Inequality, in both wealth and income, declined significantly (a process sometimes called the ‘great compression’). But in many places – the US and the UK most prominently – the era was characterised by an accord between the state and big business, a massive, intricate programme on the part of capitalists and governments (often with the active participation of trade unions) to guarantee the security of capitalism. Piketty emphasises the ways social democracy ‘embedded’ the economy in social life, but downplays the fact that, at least for the most powerful postwar states, the whole point was to find a way to preserve capitalism.

For the most part, his account of the Golden Age avoids nostalgia. He is quite hard on social democracy’s failure to ‘transcend the nation-state’ by building global institutions that might have been capable of disarming its opponents. But there is, nonetheless, a hint of wistfulness about his narrative. It reads a bit like a tale of heroic salvation from the chaos and disorder wrought by the ownership society’s theology of property and ‘disembedded’ self-regulating markets. The hero is the revolutionary offspring of Condorcet and Rousseau: progressive taxation.

ForPiketty, progressive taxation rescued capitalism from the inequality-induced instability it cannot help but engender and which led to the catastrophes of 1914-45. The development of a sophisticated fiscal progressiveness, in particular the sort that characterised postwar social democracy (top marginal tax rates averaged 81 per cent in the US between 1932 and 1980, and were even higher in the UK), has always been the best and perhaps the only effective non-violent way of dealing with inequality: ‘The principal instrument for mobilising resources to undertake common political projects was and remains taxation, democratically decided and levied on the basis of each taxpayer’s economic resources and ability to pay, in total transparency.’

Tax and violent disorder represent the best and worst of the modern human collective, a collective that is always, inevitably, struggling with inequality. Just as Capital in the 21st Century warned that contemporary inequality might precipitate a ‘Ricardian apocalypse’, Capital and Ideology is peppered with references to the ‘dangers’ – usually unspecified but clearly associated with ‘identitarian’ nationalism – that loom if we do not address the crisis of inequality. There is an omnipresent and menacing ‘or else’ lurking behind much of the book’s argument for redistribution. Piketty’s sense of impending calamity is widespread, especially among what he calls the ‘Brahmin left’, or what Americans call the ‘liberal elite’: those who are educated, economically secure and socially progressive.

This kind of anxiety plagues all elites, especially in times of crisis. Those who lie awake at night worrying about fascism are, Piketty says, experiencing something shared by all inequality regimes: ‘fear of the void’. The lords of the 18th century saw that fear realised in the storming of the Bastille and the destruction of the nobility; the industrial barons of the Gilded Age experienced it with the world wars, Bolshevik revolution and economic depression. If Piketty and the rest of the Brahmin left today glimpse the void in Trump or Bolsonaro, the elites of the ‘merchant right’ (Tories and Republicans) imagine it as a redistributive spiral of the kind that might have been precipitated by Sanders or Corbyn. The neo-proprietarian refusal to open the Pandora’s box of progressive taxation is merely the latest iteration of a dynamic Piketty perceives at the heart of all power.

At a time when apocalyptic presentiments seem to make so much sense, and the call to rebuild social democracy is consequently appealing to many, it is worth considering why, and when, the dream that something called ‘progress’ would deal with our problems died. As he is quick to point out, Piketty didn’t ‘discover’ capitalism’s tendency to produce inequality. Marx is an obvious predecessor, Keynes too. But where both Marx and Keynes diagnosed in capitalism an ineluctable drive towards self-destruction (which to Marx’s mind made other worlds possible, and to Keynes was proof that the economy needed constant expert management), postwar social democracy’s faith in ‘progress’ fooled a lot of people into thinking that everything would eventually work out OK. In 1955 the economist Simon Kuznets put forward the hypothesis that became the basis for the enormously influential ‘Kuznets curve’: ‘The long swing in income inequality must be viewed as part of a wider process of economic growth,’ through which ‘the dynamic forces associated with rapid growth’ would check ‘the upward trend of the upper-income shares’. In other words, economic growth would fix the inequality problem on its own. Inequality might plague development, but eventually things would straighten themselves out.

Capital and Ideology proves conclusively that this was an illusion. Kuznets himself admitted that the curve was ‘5 per cent empirical information and 95 per cent speculation’. In 2013, Piketty said it was devised ‘pour de mauvaises raisons’: Kuznets acknowledged that his fear of the void made him worry about ‘the future prospect of underdeveloped countries within the orbit of the free world’. As Piketty sees it, the curve is a ‘fairy tale’ with a ‘happy ending’. ‘Just be patient and wait until growth benefits everybody.’ It was ‘diametrically opposed to the Ricardian and Marxist idea of an inegalitarian spiral and antithetical to the apocalyptic predictions of the 19th century.’ The return of the proprietarian era’s astounding inequalities has brought apocalyptic analyses back with it. They are an essential part of the antidote, and already central to debates about how we might deal with our current viral apocalypse and the world that will emerge from it. Piketty’s confrontation with the void leads him to something like a liberal argument for socialism, and as the rescue packages for a world struck down by Covid-19 pile up, he has, at least for the moment, a captive audience. Whether or not his revolution without revolutionaries can get us where we need to go, his analysis of how we got here demands our attention.

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