THE EAST BOOK - Piketty in the twenty-first century
The rich tend to get richer. Now we know why.
- Friday, 03 July 2015
Writing a book about capitalism today, just when it seems as though there’s nothing new to say about the subject, may seem a little bizarre. Yet that's just what Thomas Piketty has done with Capital in the Twenty-First Century, a book that engenders either love or hate, though with equal passion.
Its 696 pages [Ed: 970 in the original French] are the result of years of untiring, dedicated work by this young yet brilliant French economist. The book clearly analyses inequality and outlines how the redistribution of wealth is totally imbalanced in the contemporary world. But its potential impact on future policy is harder to assess.
Capital was published in 2013 but took some time to make a splash because it is a difficult book. Firstly, it's written in essay form rather than pretending to be a novel. An important distinction seeing as several economists have resorted to captivating storytelling to describe the genesis of global inequality since the subprime crisis broke. Secondly, a grounding in political and international economics is essential to truly understand Capital. In this anything-but-easy-read, the analytical description of capital flows, their formation and their use requires specific knowledge.
An example is the Kuznets Curve – looking like a wide upside-down U – which shows how when per capita income increases inequality drops, apart from a physiological spike at the curve’s midway point. This is one of modern capitalism’s basic principles, according to which technological evolution, combined with industrial and financial development, is capable of not only producing wealth but also levelling out inequality.
Piketty turns this curve on its head. Contrary to observations by Simon Kuznets, the economist and 1971 Nobel laureate, Piketty shows that an increase of available income per person, resulting from the application of capitalist principles, actually produces greater income discrepancies on a social level.
According to Piketty, wage rises stemming from economic growth do not lead to a better redistribution of wealth. Indeed, the French economist shows that countries which invest the most in infrastructure and capital goods will also see the most significant discrepancies in income among their populations. Piketty’s work has been criticised from many sides. Some, like the Financial Times, say he has got his maths wrong, while others such as The Economist – which has recognised the value of the French economist’s work – point out that Kuznet’s Curve still holds true in developed economies. Others still, including a large part of French academia, have decided to further Piketty’s studies.
This is why Capital generates such diametrically opposed feelings of love and hate. It has had a greater impact than any other book published since 2007. At a time when policy discussions are scarce, Piketty's book has created an oasis of debate that has even reached the general public. Whatever future developments of his theory may bring, this is perhaps the book's greatest achievement.