Why 21st Century Capitalism Can’t Last
REVIEWS, 28 Apr 2014
Thomas Piketty’s explanation is a welcome sign of progress.
The response to French economist Thomas Piketty’s “Capital in the Twenty-First Century” has been surprising, to say the least. Though the Amazon best-seller is well written and artfully translated from French by Arthur Goldhammer, the 696-page text is filled with enough charts and footnotes to occupy experts for months. Indeed, the work was based on decades of research conducted by an entire team of specialists tracking centuries of income and wealth patterns.
The book presents a simple thesis: Unchecked, capitalism’s natural dynamics lead to an unequal concentration of wealth. This trend is increasing at a rapid rate; absent a wealth-destroying catastrophe such as war or depression or powerful new egalitarian political movements, we can expect that to continue.
Piketty elegantly explains that when the rate of return on existing capital (r) exceeds the economic growth rate (g) — as has been the case through most of capitalism’s history — the wealthy will grow wealthier than society as a whole, with disastrous consequences for future social and economic development. In more technical terms: r > g = :-(
In America, as in Europe, the past century’s dynamic can be visualized by a U-shaped curve. Before the Second World War, the top 10 percent captured almost half the national income, before seeing their share dramatically eroded in the booming postwar years. Since the era of Reagan, however, we’ve stumbled into another Gilded Age.
Which leads to the obvious question: What can be done?
Money and power
Piketty, who’s active in the center-left French Socialist Party but resists being characterized as a Marxist, offers some solutions of his own. The assessment of a global wealth tax is his most notable. Not just stocks and bonds, but land, homes, natural resources, patents and more would be subject to this tax — making it more far-reaching than any progressive levy on income. The policy would have to be coordinated across the developed world to avoid the problem of capital fleeing across borders to escape it, a difficult proposition but not a technically impossible one.
Yet the implications of his analysis go deeper. It isn’t that the rich are getting richer; it’s that they’re also getting more powerful. Across the world, inroads against economic democracy — collective bargaining rights and robust social welfare programs — since the 1970s have undermined political democracy, and that’s going to make mere policy shifts even more difficult to achieve. Workers aren’t pushing for wealth redistribution anymore; in fact, they’re actually losing battles to preserve gains won in past generations. No longer threatened at the grassroots, the ability of the world’s wealthiest citizens to shape politics is nearly absolute.
The actual implementation of democratic reforms happened in spite of, not because of, capitalists.
Developments in the United States, such as the Citizens United and McCutcheonrulings eliminating limits on campaign fundraising restrictions, have made the connection between financial wealth and political influence even more apparent. But despite public outrage — almost 90 percent of Americans think there’s too much money in politics — reform appears to be a faint hope.
In fact, there’s plenty of evidence to suggest that the U-shaped curve of the past century will start to look like a fishhook, with two major “leveling” forces of the postwar years — namely, high rates of unionization and the growth of mass parties representing the interests of workers — in indefinite decline.
Most people have come to associate capitalism with the advent of modern political democracy, on the theory that the growth of the market freed feudal minds and bodies. But while it’s true that capitalism’s productive power — new wealth from trade and investment, urbanization, advances in communications — made this democracy possible, the actual implementation of democratic reforms happened in spite of, not because of, capitalists themselves. As many modern scholars have argued, the roots of democratization were in the organized working class. Though workers needed the assistance of a host of allies from throughout society to triumph, these popular coalitions fought against yesterday’s oligarchs to secure suffrage and push for the social protections we take for granted today. Democratic reforms were foisted on resistant elites, from the English and French revolutions of the 17th and 18th centuries on to the struggles of the last. The results were by no means absolute — formal equality in the form of “one person, one vote” has never resembled anything close to actual equality — but these were major victories for ordinary people.
Elites are just as keen today as they were then to exclude others from the political process. The billionaire Koch brothers, who have funded many conservative and libertarian political causes, are little more than more banally dressed mirror images of the great estate holders and factory owners of the Industrial Revolution. They have the same compulsion to accumulate profits at the expense of their employees, and they’d like to do so with as few regulations in their way as possible.
Lucky for them, with the near disappearance of the international socialist movement and the organized working class in the past decades, the path has been opened for an anti-democratic counterrevolution of sorts.
But perhaps there’s hope. That so many people are trying to tackle “Capital in the Twenty-First Century” is at least a testament to a growing public interest in capitalism — the force that shapes their lives. And even if they’re not reading all 700 pages, many are more than comfortable with endorsing its redistributionist conclusions. It’s possible that in the long term more of them will see that resisting capitalism is the only path out of a world where some can live on rents and interest, while many spend their whole lives working themselves to death.
And yet, as Piketty’s book alludes to, the more time passes, the more entrenched and powerful the scions of capital will become. We’ll need to muster the forces capable of challenging them sooner rather than later. And though “Capital in the Twenty-First Century”is more than welcome, it’ll take more than a best-selling tome to do so.
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