Home' acuity : Acuity July 2014 Contents CAPITAL IN THE 21ST CENTURY
is a seminal work that starkly and
dispassionately highlights the growing,
and inevitable, rise in inequality of
income and wealth within countries from
Sweden to China to the United States.
It raises doubts whether the existing
(and significant) level of government
intervention will restrain inequality
sufficiently to ensure our economic
system maintains widespread support
into the 21st century.
Magisterial, ambitious, and eloquent
(if a little prolix), it is no surprise the
685-page tome by Parisian economics
professor Thomas Piketty (first
published in French last year) has
rocketed up international best-seller
lists, given it provides empirical and
theoretical backing for the typically
emotional arguments put forward by
the anti-free market “Occupy Wall
Street” movements that have sprung up
in the wake the global financial crisis.
Rising inequality in the United States
where the share of national income
earned by the top 10% has risen from
35% to 45% since 1980 (half of which
accrues to the top 1%) – is not an outlier
fostered by a US “hyper capitalism”,
Piketty argues, but a trend evident in
all rich countries, including in relatively
egalitarian Australia and Canada.
“ There is no natural force that
inevitably reduces the importance of
For whosoever hath,
to him shall be given
Will the steady accumulation of wealth by the wealthy lead to economic revolution?
Capital in the 21st Century
by Thomas Piketty
Reviewed by Adam Creighton
capital and of income flowing from
ownership of capital over the course
of history,” he writes, predicting
inequalities across rich countries will rise
by 2100 to levels last seen in Victorian
Britain and pre-revolutionary France.
The cause, he says, is twofold.
First, in stagnant economies such
as those in Western Europe and North
America (either because of slow
productivity or population growth) the
returns from owning capital (including
stocks, bonds, land and buildings) tend
to rise as a share of national income,
even if the rate of return falls, at the
expense of wages and salaries.
The total value of capital comes
to tower over the modest flow of
Meanwhile the rise of super
managers – massively well-paid senior
employees of large public listed
corporations – has distorted the labour
market, lifting the share of income
earned by the top 1% in Australia, for
instance, from 5% in 1980 to 9% today.
Piketty attributes the rise of super
managers to a failed model of corporate
governance that allows managers to
pick their own (extortionate) salary
rather than receive a reward based on
effort or skill.
“It was war, and not harmonious
democratic or economic rationality,
that erased the past and enabled
society to begin anew with a
clean slate,” he writes, arguing the
destructive, decisive effects of the
two world wars tricked contemporary
economists into thinking modern
capitalism would lead to rising equality
where differences of income and wealth
were more or less determined by effort
Conservative economists are right
to point out that Piketty’s policy
conclusions – more steeply progressive
income taxes and greater reliance
on wealth taxes – are difficult to
implement, even if a land tax, for
instance, might have some theoretical
merit. But if Piketty’s projections prove
broadly right, the status quo is bound to
come under attack sooner or later.
The book’s emphasis on relative
wealth and income within rich
countries glosses over the sustained
and rapid rise in living standards
that freer markets have fostered in
developing countries, lifting tens of
millions out of poverty and curbing
inequality between countries.
Moreover, Piketty’s gloomy
assumptions of slow productivity and
population growth may prove wrong.
As Piketty himself observes, Marx’s
belief that real wages were falling
were being proved wrong even as his
famous Das Kapital was published in
the late 19th century.
Anyone who enjoys history and
economics will love this book,
except perhaps for professional
economists, whose “childish passion
for mathematics” and “abstract and
sterile” statistics Piketty believes have
served to obfuscate rather than reveal
ADAM CREIGHTON is Economics Correspondent at
The Australian in Sydney. He has written for The
Economist, The Spectator and studied economics at
the Universities of New South Wales and Oxford.
BONUS TABLET FEATURE BOOK REVIEW
acuity | JULY 2014
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