inequality

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Capital and Ideology

Thomas Picketty has produced another enormous tome. Like Capital in the 21st Century, it is an excellent analysis of the growing problem of inequality and comes at a really interesting time. Whereas his first work looked at the economic drivers of inequality and produced the formula r>g where r stands for the annual rate of return on capital and g stands for the growth rate of the economy. In essence claiming that the wealth of owners of capital’s income will increase at a faster rate than the growth in the overall economy. This facilitates a remorseless concentration of wealth in the hands of fewer and fewer people. In essence that book looked at the mechanics of this process. 

Capital and Ideology is a companion volume which essentially looks at how the inequality produced by this mechanism is justified. It does so by setting the process of justification of inequality regimes in there long term historical setting. He explores the transformation from, what he sees as a sort of pre-modern template for all inequality regimes, ternary or trifunctional societies, to the inequality regimes of modern unified states. 

Trifunctional sytems are those which divide society into three variously described social orders. Essentially, a clerical, a noble and a mass grouping. The clerical is the religious and or intellectual order, the noble is essentially the warrior class, and the final group is the third estate, the property-poor remainder of the population. Picketty applies this trifunctional analysis to an enormous canvass. Ranging across a number of European civilisations but also, India, China, Iran and others. He sees this system of distinctions as the oldest and most common type of inequality regime.

His analysis is aimed at showing how the trifunctional historical roots of different societies shape the changed circumstances of inequality and continue to echo in the forms of justification used today. Throughout there is an impressive wealth of historical data and analysis. 

Picketty also looks at how the “age of exploration” and imperial dominance impacted the shape of the global economy, the emergence of the modern centralised state and a new template to support the new inequality regime. A template structured around the deification of property ownership. Under trifunctional regimes there was an overlapping of property rights and regalian powers at the local level. In other words the local baron owned the land, defended it, taxed it, maintained order and dispensed local justice. The emergent modern age was organised around “a strict separation of property rights, ostensibly open to all, and regalian powers, a monopoly of the centralised state.” 

This model persisted through to the beginning of the 20th Century when three challenges arose causing a crisis for the ownership model founded on private property. The three challenges were around, growing inequality within European ownership societies; inequality amongst countries as colonial competition and increasingly powerful independence movements contended; and finally a nationalist and identitarian challenge which reinforced competition amongst European powers with the consequences of economic collapse and two world wars.

All of this led to a different view of property and willingness to redistribute it as an outcome of conscious public policy. A massive reduction in levels of inequality resulted with the advent of social democratic movements across the world, building upon demands from the 19th Century for wider franchise and greater state support for the unemployed and the old. Accelerating the creation of social states with substantial public services and economic and industrial engagement by governments. The New Deal in the US, the National Health service are just two, albeit shining, examples of how the needs of the majority of the population started to be met.

In truth the first two parts of the book are building up to this point and the last three are an analysis of how the period of classist, social democratic politics after the end of World War 2 consciously addressed the issue of inequality and created a trente glorieuses where the living standards of millions in the west were increased beyond any historical precedent. It then analyses the period from 1980 when a new model of Hypercapitalism evolved through the twin processes of globalisation and communications technology innovations, and the new justificatory regime which supported this model. One dressed in notions of equality of opportunity, set in a context where the levels of wealth concentration are returning to levels last seen in the gilded age of the robber barons.

This is a political economy history book but focussed very much on the here and now and critically the ideas and ideologies which have created and sustain the world we live in. By setting these in a historical framework Picketty aims to show how what exists at the moment as the economic reality is contingent and can be contested, but more importantly can be changed. The book does not just analyse the world but aims to change it. Picketty sets out what can be done via progressive taxation of all sources of income and wealth to reduce unsustainable levels of inequality. He addresses the issues of tax avoidance and secrecy regimes; the problem of European unity; the beggar my neighbour race to the bottom of corporate taxation; inequality in educational opportunity and much more. The book does not lack ambition.

By bringing into the public consciousness the experiences of the past, where, for example, property rights were so sacrosanct when slavery was abolished it was the slave owners who were compensated, it provides depth  and shade to many contentious issues of the hear and now.

This book is very much a marathon but one where you are running through the pages of history brought to life in limid prose and substantial detail. Acres of statistical evidence are marshalled and reveal trends in the longue duree which impact now on the issues shaping national and international political debate. They are deftly handled by a writer at the top of his game. Dissecting ideologies and debates of the past and illustrating how they continue to be evoked in political debate. Like a marathon the work is daunting at the start but on completion there is a real sense of elation. I have every confidence there will be those who profoundly disagree with it and I am certain some of the arguments are contestable, however, as a catalyst for change it is unrivalled.

It would be fascinating to hear what Picketty has to say about the political economic implications of Covid-19 as I suspect they may provide a catalyst for much more profound change than anything we have seen to date.

It is said that those who fail to study history are condemned to repeat it. Picketty is doing his best to help us overcome this failure. Help him. 

“Capital and Ideology” Thomas Picketty. Belknap Harvard Press 2020.

(45) How to reform today’s rigged capitalism | Financial Times

Opinion Capitalism
How to reform today’s rigged capitalism
We must address weakened competition, feeble productivity growth, high inequality and degraded democracy
MARTIN WOLF Add to myFT

via (45) How to reform today’s rigged capitalism | Financial Times

Northern Comment – This is one of many articles from people who wish the ends but not the means. Those who analyse the problem superbly well, e.g. inequality, but hope/believe, that it can addressed by some kind of rational process. I wish! Sadly, I think those that “have” think it is nothing less than they are due. Rational argument is unlikely to win. Irrational violence is more likely to be the ultimate arbiter. Just hope this happens somewhere else.

 

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A Radical Political Manifesto for 2017

If you have not read the Labour manifesto I commend it to you. It is about tax and spend, just like all the other manifesto’s. That is what governments do, they collect taxes and pay for vital services such as defence, health and education, oh and filling the holes in the road. In relation to tax and spend the Labour manifesto differs from the Tory one in this respect only, that it is better costed!

The Labour manifesto is radical in that it has made the “hard choice” to raise taxes, what is more, it has made the “hard choice” about who is going to pay those higher taxes. Normally when you hear a government minister talking about “hard choices” you think someone is about to get a kicking. Often it is a group of citizens or workers distinguished by their weakness. But not always. The past decade has seen governments of all persuasions talking about the sacrifices that are needed by the majority in order to “balance the book”, “deal with the deficit”, “live within our means” and a range of other cliches raised to the status of policy. Certainly, the hard choices of the Cameron administration were very much about that.

The Labour manifesto addresses all the issues you might expect but critically in relation to care, education, health and industrial strategy it does not talk about how they will be improved by greater efficiency, more competition, delivering more with less or even moving the deck chairs in some complex restructuring exercise. There are some elements of this but bottom line is they say they need more money. And despite the automatic response of the government to any criticisms of its actions, that “Record amounts are being spent on [insert service of your choice]” the reality of most people’s experience is things are getting worse. Services are deteriorating. The “record amount” going into the National Health service is so effective the government does not want the figures for Health Trust deficit’s to be published before the election.

So the Labour Party manifesto is a radical document, it marks a real shift in thinking. It is not constrained by a mindless mantra that nationalisation is necessarily bad because experience seems to show that privatisation is certainly not necessarily good. What is more the risk of nationalised industries gong wrong and thus costing the tax payer a whole pile of cash is not such a powerful criticism when we discover that if private industries, say finance, go wrong they cost the taxpayer a whole pile of cash and more.

Having said all this I suspect in time the Tory manifesto will come to be seen as the most radical of all the current manifesto’s. For the past thirty to forty years there has been a growing consensus structured around a neoliberal economic model of the world which has been about lower taxes, a smaller state and weaker trade unions. The rationale for this is that such actions will lead to improved productivity and greater economic growth. The rising tide of wealth this will create will lift all boats.

Unfortunately, so many boats seem to be stuck in the mud of increasing debt, insecure employment, deteriorating services and, oh, ever more pot holes in the road. A growing sense of frustration with the mantra of jam tomorrow and ever increasing inequality today has permeated the political mantle. The pressure building in the electoral tectonics is palpable and making itself felt in what has become labelled as a popular revolt.

This popular discontent across the whole of the West cannot be dismissed as the irrational response of the “basket of deplorables”. Firstly, there is a growing academic literature raising concerns about inequality and the negative impact it is having on the economy. Whilst some of this is from academics with radical or left wing leanings, it is not all. There are voices from the right who are concerned that the market is rigged and the “invisible hand” is cuffed to the interests of the very wealthy.

To her credit it seems as if Mrs May senses all this and sees something needs to be done and the solution may not be “the market”. The manifesto talks about governing from the mainstream, and states, “We must reject the ideological templates of the socialist left and libertarian right and instead embrace the mainstream view that recognises the good that government can do.” (my emphasis)

The manifesto contains a number of straws which suggest the wind is changing. There is of course a huge difference between rhetoric and reality. The rhetoric could be dismissed as a cynical attempt to attract traditional Labour voters with empty promises. After all this is the government that has promised to get immigration down to tens of thousands, eliminate the deficit and indeed reduce the national debt. It was also Mr May who made very strong comments about workers representation on boards which is being diluted as we speak.

What’s more, excitement at some more progressive comments by the leader of the Tory Party needs to be set against the reality of a  lot of very powerful people whose interests will be directly damaged by a rejection of the neoliberal orthodoxy. They are not going to be persuaded because we have a politician who sees there are genuine issues in relation to inequality and opportunity and they will fight to maintain the common sense view of the world that suits, very well, their personal interests.

The common sense view of the world which has evolved over the past thirty years sees the market as an impersonal and efficient allocator of investment, goods and wealth. A view of the world which sees people as rational utility maximisers who have perfect knowledge of the market, and exchange goods, services and labour freely. The reality of most people’s lives is not like this. The twenty first century market bares no comparison to that of the eighteenth, nineteenth or indeed most of the twentieth century. Putting that aside, the bowdlerised version of this model, which is at the core of the libertarian neoliberal view, is even further from the reality.

The Conservative manifesto seems to recognise this. It is a breach in the orthodoxy. It is a chink in the armour that has defended an increasingly indefensible world view. Whatever the outcome of the election the framework of political common sense is starting to change. At the moment it is about opening up areas of debate that have been closed for decades. It will take time for this to crystalise into clearer manifesto’s of change and change itself. However, better there is an increasingly conscious and rational debate about the way in which opportunity and wealth is managed and ditributed in our societies than the alternative.

For the avoidance of doubt, whilst I think the Tory manifesto may prove to be the most radical of the 2017 election I will be voting Labour. The radicalism of the Tory manifesto lies in its implicit recognition that some of what Jeremy Corbyn says about wealth and power is true.

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Time for a new model pension fund rescue — FT.com

Whatever the solution, the problem is critical. If rising bond prices and poorly designed pensions are not to create yet more inequality, poverty and anger on the part of those who feel abandoned by capitalism, it is more vital than ever to work out a model for pensions that is fairer than DC, and more practical than DB.

Source: Time for a new model pension fund rescue — FT.com