A few years ago the
economist Thomas Piketty became a world celebrity
with his book Capital In The 21st Century,
a book which actually became the best
selling economics book of the 21st century, so far. His new book
Capital And Ideology is now available in
English in the bookshops. Thomas Piketty is here to
talk to the FT about the book. Welcome. The previous book really
put inequality on the map. Here you talk about
ideology, and how it shapes what you call
inequality regimes, and how inequality in
turn shapes ideology. Give us a glimpse
of the argument. Well, the novelty of this book
as compared to the previous one is that in the previous one,
I was very much centered on the experience of
western countries, in particular western
Europe and North America during the 20th century. And the way World War
One, World War Two contributed to a big
reduction of inequality. Here, I take a much
broader comparative and international perspective. I look at India,
I look at Brazil, I look at South Africa,
China, Latin America. And this allows me, I
think, to better understand how over time, over a
long period of time, you see major transformation
of the structure of inequality in various countries. And the main driving
force, I think, it's not so much a violent
destructions through war, or economic
deterministic forces, or technological
or control forces. But rather, the
changing ideology and the changing political
mobilisation about inequality. So you see countries in history,
which choose to be very unequal in their organisation
of property relations, or think Sweden, which we now
view as a very egalitarian country but between
1865 and 1911, you had actually voting rights
that belonged first only to the top 20 per cent
of the population. But within these
top 20 per cent you could have between 1
or 100 voting rights, depending on the level
of your property and tax. And in several dozen
municipal elections you could actually
have one individual who had alone more than
50 per cent of the vote, including the prime
minister of the time. And you know if you had
told someone in Sweden in 1910 that this
was going to become a very egalitarian country,
the old political system was organised very differently. And there are many other
national trajectories, examples of countries that I
describe in the book, you know, just changing the
structure of inequality. In India, during the
period of colonisation, and how independent
India tried to develop the positive
discrimination in order to reverse some of these
very strong inequalities toward the formerly
discriminated lower caste of society. So lots of examples showing
that there's nothing natural in the way social
and economic inequalities are organised in
any given place. It really depends on the
imagination of societies, and also the ability of the
different sort of narratives on inequality to win the
day, through mobilisations, through the political platform. And I think it would be
the same in the future. It's kind of an interesting
evolution from our previous book, which I think left some
readers with a bit of fatalism, in the sense said
that there was... some of the measures
seem to be there. There are some very strong
material forces at work here that makes inequality, you
know there's a strong tendency towards widening inequalities. And this perspective
on ideas, and in some sense I think more
optimistic that if you change enough people's
imagination, as you put it, things can change in the
material economy very quickly. When you look at the
global perspective, do you find that these changes
in ideas have global reach? What happens in one place
also happens somewhere else? Or are these idiosyncratic
to different countries? Well, sometimes you have a
very quick diffusion of ideas. So if you think of the rise of
progressive taxation of income and wealth around World War
One, and in the interwar period, it's very striking to see these
very fast diffusion of ideas. So until 1914, no country would
dare having a top income tax rate, or top inheritance tax
rate above 10 per cent or 20 per cent . And then suddenly, in
the interwar period, having 60 per cent,
70 per cent, 80 per cent on very large
income, or very large ones, becomes almost the norm. Following the US, which has
been a leader in the development of progressive taxation
in the interwar period, up until to Reagan basically. Up until 1980. And then... Introduced an income tax in
1915, something like that? 1913 in the US. So it was actually
before the war. It's interesting that
in the case of the US it was peaceful social
mobilisation that took more than 20
years because they had to change a federal
constitution in order to make the possibility
of a federal income tax constitutional. In France, you have to
wait until World War One. Its really the summer of 1914. So the war helps. Yeah, well this is
in the case of France this is very, very sad story. It's only to pay for
the war with Germany that finally the
political decision is taken to create an income tax. Before that, the
French political elite would say okay in France we
had the French Revolution. So that's enough. We are already are
a country of equals. So we are not like aristocratic
Britain, also Italy or Prussia. And that's also an interesting
example of how sometimes the elites tend to
instrumentalise their own national history in
order to preserve... It's a function of ideology,
as you describe it. Yeah, sometimes it's to
protect your own interests. But I tried to take
this set of ideas seriously, because
there are always more than just pure hypocrisy. There is some
hypocrisy sometimes. But it's usually,
they always have some grain of plausibility. People drink their own Kool-Aid. Yeah, it's a... Especially if they
are paid for it. We have to take these ideas. We always have to
take them seriously if we want to go
beyond them, and then move to a different
inequality regime. It almost sounds from
the book that if it's the ideas that change,
and that's what drives it, it actually sticks more. Because you mentioned that
Germany didn't have very high tax rate for very long. It was basically on
the western occupation. So, I mean, it seems like when
the ideas change you actually get more lasting change. That's right. So in the case of
Germany there are also ideas that actually
change and work quite well, which is the
whole idea of co-management. You have workers' rights
in the board of companies. And so this was created
in the 1950s, where in large corporationS
in Germany you have half of the seats in
the board of large companies which go to a worker
representative elected by workers. Those I'll go to shareholders. So shareholders actually have
half of the seats plus one. So they have the decisive vote. But if workers in addition to
the 50 per cent of the vote as workers, own 10 per cent
of the shares, 20 per cent of the shares of the company. Or even some local government,
regional government which sometimes happens in
Germany, own 10 or 20 per cent of the
share, then you can have a change in the controlling
majority of the company, in spite of the fact that
some private shareholders have 80 per cent of the shares. So you can see that these
enormous legal transformation as compared to the one share one
vote view of private property, and private co-operation. And this is an example of
an innovation that actually did not spread too much. You know, progressive
taxation was an example where you have
large international diffusion. Here it has sort have
remained a specificity of Germany, and Sweden,
and Nordic countries. But until the present
day, this did not really spread in Britain, in
US, actually in France. In my own country
you still stick very much to the one
share, one vote principle. I think this could change in
the future because in the end, these German Nordic
system of co-management worked pretty well. It's quite successful. Yeah, in getting
workers to be more involved in the
long-term investment strategy of the firm. And I think this is something
that is now discussed, including in the US
by Warren and Sanders, of introducing more workers'
rights in the board of US companies. And I think these could be,
if this was adopted in the US, in Britain, in
France, there could be a well diffusion
of these other models of corporate
governance going on. And this would be a
pretty major change. So more broadly, what
is the state of play in terms of ideology today? It does feel like
everyone's sort of looking for a new direction. Yes, I think we live at a
time of great uncertainty, because the ideology
of globalisation and financial deregulation, as
it has developed in the 1980s, is now at a time of crisis. So first of all, in the US
and the UK, where there was... Reagan sort of made the claims
that we will get more growth, more innovation, by relying
on a more free market... And the government
is the problem, yeah. But 30 years later,
in fact US workers have not truly seen the growth. And if anything the
growth rate in the US has been divided by two,
following the Reagan decade. You know, between 1990 and
2020, the 30-year period, you only have 1.1 per cent
in per capita national income in the US, which is twice as
less as between 1950 and 1990. So the claim that by
reducing top income tax rate, and actually
dividing them by two, you will stimulate more
innovation and growth. This could have been true. This could have been true. But that's not what we've seen. And I think this is
why today, basically you have two possible
reactions to that. You have a sort of the Trump, or
in a way the Brexit discourse, which is to say, OK, we're
going to limit the competition from foreign workers. We have got to limit
the flow of people, the flow of immigration. Build a wall with Mexico,
and protect yourself from your foreign competition. And in the UK you
add a little bit of that with Polish workers
and stubs of free circulation of the people. Now there's another
way, which I think of trying to regulate the
circulation of people, to regulate more of
circulation of capital, or at least to try to. If you want to have free
capital flow going on, I think you need to have in
exchange a more equitable tax system for large corporations,
for large wealth holders, income holders. So now, in between you could
have business as usual. You don't want to
regulate more labour. You don't want to
regulate more capital. But I don't think this
is really an option. Doesn't seem sustainable. And you, of course, participate. You don't just analyse
this, but you participate, and you're in that second camp,
arguing for more progressive taxation. You also talk about shared
power in corporations. We've already mentioned that. But tell us about your
wealth tax proposal. Because in the book it comes it
comes out as pretty draconian. You have tax rates going up
to 90 per cent in a proposal. Yes, actually this has been
done in the past, actually. It is exceptional wealth taxes. For instance, after World
War Two in Germany or Japan, in order to reduce very large
public debt of the time, there was progressive
tax up to 90 per cent and very large
wealth portfolios. And these worked pretty well,
because it allowed these two countries, Germany
and, Japan, to reduce very fast their
public debt, and then to invest in public
infrastructure, education in the '50s, '60s. And I think this
was a large success. Now, it depends, of course,
on the level of wealth at which you do that. You know, if you tax
90 per cent someone who owns the entire
world, you know, you would still own 10 per cent
of the world, which is a lot. So it's all... we have to discuss. So to put concrete
numbers, I use in the proposal I make,
I use the proceeds of the annual wealth tax, and
of the tax entirely to finance a system of inheritance for
all, where everybody at age 25 would receive 120,000 euros. Now in the system I propose
people will now receive zero would receive 120,000. This is about... As a one-off payment at age 25. Age 25. Like a one-off
universal basic income. Like inheritance. And so people who
used to receive zero will receive 120,000. That's about half
of the population would receive close to zero. People today would
receive 1 million after the tax everything,
they would receive 620,000. So you know, this is
not complete equality. And if you want my
opinion, I think we could go further than that. But I think what's important is
that poor children, or children of the middle class, and
the lower middle class also have good ideas
to create firms. And you can also
buy an apartment. And I think property
is also a way to change the power
structure in society. And to give more
bargaining power to people so that they can
better choose which job and which wage to accept. And this is a way
to allow more people to participate in the economy in
a way where you can make plans. And I think this is
really what we need. I think the level of
inequality we have today is not only unfair, but
it's so not efficient for the working of
our economy, where we live in very
educated societies, and we need, you know,
broad participation by a very large group. And the ideology
that we still have today that more
concentrated power, and more concentrated
ownership is always good. And no matter what the number
of zeros for the millionaire, who else, it's always... we should always
keep it like that, I think is not convincing. So what do you say to
those who say well, we regret that wealth
is so concentrated. But your sort of proposal
is so confiscatory that it completely removes the
incentive for accumulation, and that will be bad for
productivity and growth. And in the end, will hurt
even those who tried to help? That is the standard
counter argument? What's your answer? As I was saying, someone was
about to inherit 1 million, will still inherited 620,000. So why is it that some people
should inherit 10 times, 100 times more than others? All children have good ideas
in life to make project, and I think we have to
think harder about this. And the view that because you've
made a fortune, say at age 30, you should keep all the
decision-making power at age 50, 70, 90,
I think corresponds to a sort of monarchical view
of the working of modern economy and modern corporations
that is really at odds with the reality. Today, we have a lot more
billionaires and much wealthier billionaires in the US,
and in the world than what we had in the '70s or '80s. But in terms of productivity
growth, we actually don't... so we have
billionaires everywhere except in growth statistics. So people say we have
more innovation because we have more patents, but yes. OK, maybe people
put their patents and they put their name
everywhere, including on items they did not invent themselves. But if this were
real innovation, you should see it
in productivity, and in output growth, and the
growth of income and wages. And we've not seen that
in the past 30 years. So... It's clear that we
have seen higher taxes with higher productivity
growth in the past. But one final
question about this. I mean, in the past
you've advocated an international wealth tax. Could this be done
by a single country? Because it's somewhat utopian
to think that everyone has to do it at once. Is it possible to pursue
your sort of programme, very steep wealth taxation,
for one country to start with? Well, you have to
rethink the way you organise the movement of
capital and capital controls. This is what I was saying
earlier about control of individual labour flow,
or control of capital. You have to do something,
I think, about the capital. So take for instance
the proposals that have been made in the
US by Warren and Sanders to introduce a
billionaire tax up to 6 per cent, 8 per cent
per year of tax payment. Depending on those cases. What they both add
to this is the fact that if you want to go
away with your wealth, well first as long as you
are a US citizen, even if you go away, you pay the tax. Now, if you really want
to go away and give up US citizenship, and bring
your wealth to Switzerland, what Warren and Sanders are
saying is OK, you can do that. But you will pay an
exit tax of 40 per cent. Right? So you leave on 40 per
cent of your wealth. Now, the US federal
government has a capability to enforce that,
which will not be the case of any
government in the world. So clearly there is an asymmetry
in the state capacities. So that doesn't mean that
smaller governments cannot do anything. But clearly they have to think
harder about maybe they cannot have a tax that is as
progressive as in the US. But what this illustrates
is that there are still things you can do
without waiting for, you know, the UN
adopting a wealth tax. But even in an era
of globalisation, national power hasn't
actually been exhausted. No, you can do a lot. And if you think
of co-management that we referred to before. Germany and Sweden
didn't wait for the UN to adopt co-management
to apply it. And this has worked pretty well. So the view that nation states
cannot do anything anymore, I think he's wrong. Now, sometimes they need to
take tough unilateral actions in order to step aside a little
bit of the legal framework of free capital flows that
we've seen in the past. So when you have an
exit tax of 40 per cent you're not exactly in that free
capital flow world of before. Or actually, when Obama in
2010 threatened Switzerland that they would lose their
banking licence if they don't change legislation
about bank secrecy, we are not quite just
in free capital flow, you do what you want, kind
of setting that that actually was almost
constitutionalised in Europe. That's a problem with Europe, is
that if France and Germany were telling Luxembourg, we're
going to take away your banking licence if you don't transmit
information of our taxpayer in Luxembourg, then
in fact Luxembourg could sue France and Germany
with a court of justice in Luxembourg, saying we're
looking into the Maastricht treaty. It never says that we have
to give you this information. It says that capital can
flow with no counterpart of any kind. So now what do we do? Do we wait for another Obama
to solve the problem of Europe, with Switzerland and Luxembourg? Or do we, at some
point, accept the idea that OK, we made mistakes in
the way we wrote the Maastricht treaty, and the treaties
around globalisation in general in the '80s, '90s. But we are not going to wait for
Luxembourg to agree to changes. So at some point you need
some unilateral departure to propose a new treaty. But if Luxembourg doesn't accept
you have to put sanctions. And in the end this is politics. This cannot just
be legal treaties, you made a mistake in the past,
therefore we're going to stick with it for another 50 years. So that's the difficult
part where we are today. But if you don't do this kind
of departure from the current organisation of globalisation
then you end up with nativist parties who are going to propose
another kind of departure, which is basically to be
very tough with migrants. Because that's easier than
being tough with Google, or with rich people. But in the end, this
nativist departure is much more frightening
I think for globalisation. And in addition, is not going
to solve the problem of rising inequality. It's not going to solve the
problem of global warming. So we have to choose
between different options. And business as usual I
think is not an option. A provocative contribution to
the raging battle of ideas. Thomas Piketty, thank you very
much for talking to the FT. Thank you.
