Update – 10 November – An edited version of the post is published on the Open Forum website.
With my reading of Piketty’s Capital earlier this year and a related post on casual employment, it was very rewarding to see Professor Thomas Piketty in person at the Melbourne Town Hall on 28 October – and to listen to his extensive interview earlier that day on the ABC with Jon Faine. (The lecture at the Town Hall can be viewed here)
What is so important about Piketty’s contribution to collective understanding of inequality is that it sharply shows the extent of wealth concentrations and the tremendous advantage this confers. Fundamentally, as he explained last night – as set out in his book- the more wealth you have, the more wealth you generate through premium financial advice and investment strategies. These are many and varied of course, but often include tax avoidance strategies, not necessarily illegal, that serve to deprive governments of revenues for social and economic investments in education, transport infrastructure, health care and so on. These are are precisely what are needed to make economies and societies strong and robust – and fair. Furthermore and most importantly at this time governments need the revenue to make the investments they need to deal with climate change and to reduce global warming.
As Piketty shows, the less money you have the lower your returns. There is thus a highly polarising effect on the distribution of wealth with the wealthier getting ever richer and the poor becoming poorer. At the same time labour income over recent decades has become a less effective means of wealth redistribution and upward economic and social mobility. As explained by many commentators, this has had a strong effect on creating volatile political situations in many countries and is fundamental to understanding the reasons so many British voted to leave the EU,the ascendancy of maverick political figures such as Marine Le Pen in France and Donald Trump in the USA, and perhaps the fracturing of Australia’s political system with the rise of minority parties in recent elections.
Most troubling about Piketty’s analysis is the intergenerational effect of wealth polarisation. While there is a myth of the meritocratic society wherein you do well because of your effort and talent, Piketty shows that this is actually not really how distribution of opportunity for economic and social advancement works.
One of his powerful charts last night showed there is a direct correlation between family wealth and the university education of progeny. The poorer your family, quite simply you will be less likely to go to university. This has immense effects on the distribution of employment opportunities. In his book, he shows how there is also increasing polarisation of labour income with a few supermanagers taking vast rewards from enterprises while the wages of the majority of workers have stagnated.
Further, Piketty predicts that on current trends, it will be family wealth that will be the main determinant of an individual’s economic status in the 21st century. This takes us back to social structures of the 19th century as so vividly observed in the novels of that era and the importance of a ‘good’ marriage for getting ahead. He discusses this in some depth in relation to in Balzac’s Père Goriot set in the early 19th century. But it is a central theme in many other French and English novels I have read such as Guy de Maupassant’s Bel Ami set later in the 19th century.
These scenarios of wealth determinants have very serious consequences for the equal opportunity aspirations of women and minority groups. In essence, the social progress that has been made over the last 1oo years would retreat and old forms of stigmatisation of ‘outsiders’ take a new life as so brilliantly portrayed in the Trepalium series. Social welfare systems that only serve the most disadvantaged and ostracised have indeed taken on an increasingly punitive orientation which Dr. Tania Raffass has explicated in her recent article.
The project of women’s advancement is struggling already but would further retreat in the decades to come under the scenarios of increasing wealth inequality outlined by Piketty. Essentially the problems of the gender pay gap and, in my view, the more important gender wealth gap are at present linked closely to the trends in wealth and income distribution. An important dimension of this, is the long term wage stagnation for both men and women which intensified during the GFC (see Women and Austerity: The Economic Crisis and the Future for Gender Equality edited by sociologists Maria Karamessini and Jill Rubery and my post here).
Equal opportunity objectives for women and minority groups including older and younger workers, become more constrained under conditions of overall contraction and job loss. This has many dimensions but includes the effects of government austerity measures which have reaching effects on aggregate demand in economies as well as the sustenance and growth of secure jobs. But better, more progressive taxation through a global wealth tax as advocated by Piketty and the various measures advocated by Anthony Atkinson, would play a substantial role in reducing the need for harsh austerity measures and would contribute to the capacity of governments to ensure their countries have the social, environmental and economic investments they need for a fair and prosperous society.
Professor Piketty’s research has triggered an important debate about the burgeoning levels of inequality around the world. It is an important debate for Australia at this time with its own challenging levels of poverty and inequality. And there are serious deficits in taxation of the wealthy covering inheritance taxes, negative gearing for property investments, and tax concessions on superannuation for high income earners which urgently need to be addressed to ensure the revenue streams the country needs.