Piketty: Policy, Institutions, and a Brief History of Equality

Does equality rise? What is the role of policy, institutions, and collective mobilization for increasing equality?

This post delves into the work of French economist Thomas Piketty, whose influential books examine wealth and income inequality. Piketty highlights the long-term trend towards greater political, economic, and social equality, driven by political mobilizations, social struggles, and institutional transformations. However, he notes that progress remains precarious and more needs to be done. To address inequality, Piketty recommends progressive tax rates, redistribution of inheritance, and worker representation in companies. He emphasizes the need for collective mobilization and the continued transformation of fiscal and educational systems to foster further equality and prosperity.

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About Thomas Piketty

Thomas Piketty was born in 1971 and is a French economist and professor of economics at the School for Advanced Studies in the Social Sciences. He has written several influential books on wealth and income inequality.

“Capital in the Twenty-First Century,” published in 2013, focuses on inequality in Europe and the US since the 18th century. The book argues that inequality is a feature of capitalism and can only be reversed through state intervention, potentially threatening democratic order. Piketty proposes a global tax on wealth as a possible remedy. “Capital and Ideology,” published in 2019, expands on themes of income and wealth inequality. It examines ideological systems that justify inequality and how they influence fiscal and economic policy. The book prescribes measures to reduce inequality, such as wealth tax, and to sustain ideological support for such policies. In 2022, Piketty released “A Brief History of Equality,” a shorter book targeting non-economist citizens that traces a history of equality from 1780 to 2020, focusing on wealth redistribution.

Piketty on a Brief History of Equality

Piketty argues that there has been a general movement towards more equality in various dimensions over the past two centuries. The rise in inequality does not mean that equality has been achieved. Wealth concentration rose, for example. Despite the early rise of capitalism being marked by inequality, violence, slavery, and colonial domination, Piketty asserts that there has been a substantial movement towards equality in which increased prosperity plays a crucial role in modernization and economic development.

The rise of equality, though limited, has been due, in part, to the emergence of state policies and institutions within democracies. For example the social welfare state and progressive taxation grew in the 19th and 20th centuries. Fiscal, educational, and legal institutions further advanced equality. A set of institutions, particularly the social state and progressive taxation, have contributed to this movement. The rise of equality is a result of these institutions, and they play a critical role in furthering the movement toward greater equality in society.

The rise of the welfare state in Europe, especially the significant increase in public education spending over the course of the 20th century, played a big role. Stagnation of educational spending since the 1980s and 1990s is a possible explanation for the stagnation of growth and productivity in recent decades.

The simultaneous rise of progressive tax schedules in the mid-20th century also played a big role. This made taxation more acceptable for the middle and lower-middle classes, as they felt those at the top were paying even more. This also allowed for a reduction in inequality at the top of the distribution.

Taxation and Economic Growth

During periods of maximum tax progressivity between 1950 and 1990, the national income per capita growth rate was at its highest. In contrast, the growth rate decreased after the Reagan revolution, which saw top income tax rates cut by approximately half.

Progressive taxation does not prevent growth and innovation. The primary determinant of long-term growth is education, human capital, and productivity, and progressive taxation does not have a negative impact on these factors.

They also argue that cutting top tax rates for the wealthy is not a sufficient condition for increased innovation and growth. In fact, the growth rate has been lower in recent decades, which may be related to stagnation in educational investment and rising inequality.

Piketty’s policy recommendations to increase equality

Based on historical evidence, Piketty recommends returning to very progressive tax rates for income, inheritance, and an annual tax on net wealth and property of all firms. This would encourage the circulation of property and economic power, leading to a more equitable distribution of resources. In redistributing inheritance using progressive taxes on wealth and inheritance, proceeds from these taxes could be used to finance a minimum inheritance for all at age 25. This would significantly reduce wealth inequality passed on to each generation and could lead to more prosperity as individuals with less access to starting wealth would have more opportunities to pursue economic projects.

Another suggestion involves extending the system of co-determination, where workers have more representation on company boards, as seen in Germany and some Nordic countries. Piketty imagines a system where 50% of voting rights go to worker representatives, including in small firms. Additionally, as a company grows, there would be a cap on the maximum share of voting rights a single shareholder could have. This would lead to more power sharing and encourage collaboration between shareholders and workers. Piketty acknowledges that these ideas may not be implemented soon and that they may not be perfect solutions.

The role of collective mobilization to increase equality

Piketty emphasizes that collective mobilization and organization are crucial for addressing inequality. New forms of political coalitions and organizations with platforms for change are needed, but current efforts are far from the organizational capacity of movements from a century ago. Piketty, author of one of the most famous books about inequality, argues that books and discussions can only contribute so much, and substantial transformation requires larger-scale collective mobilization.

Over the long run, there has been more political, economic, and social equality due to major political mobilizations, social struggles, and constructive transformations of institutions like fiscal and educational systems. This trend towards greater equality can and should continue, leading to more equality and prosperity simultaneously. However, these achievements are precarious and have left temporary compromises.

Money and Power and Participation

Despite progress, the power of money in political systems remains significant, and education systems still show considerable inequality. The probability of accessing higher education is heavily influenced by parental income. Ambitious targets should be set in education and political participation to continue the long-run movement towards equality.

Piketty proposes a system based on the permanent circulation of power and property via progressive taxation and workers’ rights. Piketty argues that a “democratic socialist system” is in line with the historical evolution from colonial capitalism to social democratic capitalism.

Whether equality will increase depends on the balance of power at domestic and global levels. Institutional transformations of the past were due to political transformations, revolutions, and social mobilization, and the same will be true for the future.