A decade ago this month, Thomas Piketty’s Capital in the Twenty-First Century was released in English (a few months after the French version). It would go on to sell more than 2 million copies, becoming the most popular economics book of its eponymous century so far.
Piketty argued that rising inequality was an intractable feature of capitalism. His famous equation r>g summarised reams of data showing the returns derived by capital owners — think rents enjoyed by landlords, dividends paid out to shareholders — are usually greater than overall economic growth, unless the latter is especially high.
Thus capital owners will usually move ahead faster than the rest of us can catch up, and the more capital you own, the faster you’ll move ahead. Basically, the rich tend to get richer. Piketty proposed a global wealth tax to avert a return to Jane Austen-like distinctions of privilege and squalor, based more on inheritance than so-called merit.
Even the most influential books rarely change the world, but rather epitomise and propel latent sentiment. Prior to publication, Occupy World Street had already aimed its crosshairs at “the 1%”, catalysing a rising backlash against obscene inequality after the global financial crisis (GFC).
The centre-right’s subsequent focus on “flexibility” and “competitiveness”, and the centre-left’s on education and a limited safety net to (unreliably) lift the bottom up — while being, as New Labour’s Peter Mandelson said, “intensely relaxed” about ballooning excess at the top — were already coming under fire from nascent left populists in Western Europe.
Piketty’s contribution was to centre inequality within economics, whose practitioners had too often handwaved distributional concerns as probably self-correcting in the developed world. And just as the GFC was receding in the richest countries, whose elites wanted to chalk the crisis up to financial recklessness alone, he pierced their teleological optimism about capitalism.
If we run it on autopilot, Piketty showed, the rich will continue getting richer year on year, to the detriment of the rest of us, possibly forever. The GFC shouldn’t merely have been a hangover we shrugged off, but a harbinger of a new epoch.
An academic cage match
Much scholarship has since corroborated Piketty’s findings. For instance, a jaw-dropping 2021 study by Italian academics on intergenerational wealth in Florence found that having wealthy ancestors pays dividends for up to 600 years.
But Piketty also faced criticism. Some reactionaries dismissed his analysis as “Marxist”, but while Piketty is a self-proclaimed socialist, his analysis differs significantly from that other guy with the thick tome titled “Capital”. Marx focused on class as a relation, and the potentially revolutionary tensions it fomented, with society teeming like a tinderbox about to blow. Piketty’s accounting, conversely, depicted a remarkably enduring stasis of wealth, undisturbed by supposed contradictions, aside from a brief post-war compression. This shifted the left’s focus from the workplace to the cloistered worlds of sprawling mansions and exotic tax havens, from incomes to wealth, industries to inheritances, industrial relations to tax.
More recently, scholars Gerald Auten and David Splinter challenged Piketty on empirical grounds, claiming inequality hadn’t actually increased much since the 1960s; it was a statistical illusion. But as The Atlantic’s Rogé Karma finds, Auten and Splinter rely on their own sets of very questionable assumptions, rendering their work pretty slippery. Piketty is standing his ground.
The top 1%, protected by the top 30-40%?
On the policy front, Piketty appears increasingly frustrated. While efforts to reform multinational tax laws and prevent tax avoidance are still kicking around in international forums, getting delayed and watered down, the debate around increasing wealth taxes has fizzled, running up against hard political roadblocks.
This highlights one minor flaw in Piketty’s packaging: his overt focus on the hyper-rich, as opposed to capital owners more broadly. While Piketty certainly noted how the post-1970s rebound in inequality had channelled a little more of the spoils to the middle classes than previously, his literary allusions more often conjure modern aristocrats and robber barons like Jeff Bezos and Elon Musk.
While such figures are obviously odious and benefit astronomically from the status quo, the potential political coalition behind curbing their enrichment has come unstuck largely because the middle classes (particularly the upper-middle class) have proved unreliable egalitarians, at least as judged by opinion polls and the politicians they keep up at night.
Such “little capitalists” did not so much find common cause with the oligarchs as defended the schemes of wealth expansion they too have benefited from, or plan to take up, like the capital gains tax discounts in Australia and the United Kingdom. It is such demographics that weaker centre-left parties have since run scared from, more often than uber-rich donors.
Australia: The land of capital
Nonetheless, Piketty is right to call today’s centre-left too timid and urge greater ambition in the post-GFC spirit. Inequality has, as he predicted, only gotten worse.
His work is particularly prescient in Australia. Over the past two decades, the average wealth of the wealthiest 20% grew at four times the rate of the lowest 20%, according to a 2023 report by UNSW and the Australian Council of Social Service.
Our politics is increasingly circling the drain of inequality between capital owners and non-owners, refracted through the lens of housing. Homeowners have increased their wealth by many multiples in the past two decades while renters are increasingly locked out of such accumulation and struggling to pay landlords’ returns.
You don’t need to read Piketty to see capital’s returns are usually outpacing overall growth; simply spend a Saturday attending rental inspections and home auctions. Treasurer Jim Chalmers recently met with currently in-vogue economist Mariana Mazzucato, who advocates a more mission-led public sector. Well and good. But Chalmers would be wise to also pick Piketty’s tome back off his shelf, dust it off and get to work. The next best time, after 10 years ago, is now.
