Thomas Piketty in conversation with Mike Savage (Part three)

capitallogo95x95This is the third instalment of this interview, the first part can be found and the second part here. These three parts provide an edited version of the audio files of the interview, a full transcript can be found here on the LSE International Inequalities website.

On the 8th of July 2015 Mike Savage interviewed Thomas Piketty about his work, his influential book Capital in the Twenty-First Century (which is sometimes referred to as “the book” in the interview) and the underlying methodological and conceptual frameworks in his research and writings. The interview has been transcribed from an audio recording. We will be publishing an edited version of the interview on the TCS Website in three parts.

MS. One of the interesting things to me, the success of your book, which has obviously I guess done better than you thought it would do and it’s had bigger impact, I’ve been thinking about why that might be and obviously there’s a lot of reasons including the fact that equality is such a big and powerful issue and it will become more so. But I also think there’s a certain model of how you might do accessible social science in the book, which is very interesting. I don’t know if you know the book The Spirit Level, but in a way that also sold lots of copies and was very popular, but is a bit similar to yours, it seems to me the public like data, they’re less keen on theorists these days, i.e. people telling them how the world is. They quite like now big books with graphs and stuff that you can work through, and this is partly the challenge of ‘big data’ and the sense of crowdsourcing and the potential that has, but also the issue is how do you make a crisp story out of big data or complex data? And obviously in the Spirit Level, Pickett and Wilkinson did that in terms of arguments about in an unequal society everyone suffers and also using similar kinds of graphs time and again. You do it partly through your U shape figures, which appear time and time again in the book, and partly through your formula, R is greater than G, which again, even if you’re not an economist you get a sense of what you mean there. So I think that’s a really interesting model about how you do popular social science, which is in a sense not to kind of provide abstract theories of it but to provide data but then find some ways of giving a straightforward handling to the data. Which leads me to ask about the R is greater than G formula, because in a way one of the interesting features about your book and your work is you emphasise a lot of the time the importance of political institutions and everything varies according to the context, but you also do talk about fundamental laws of capitalism, such as R is greater than G, and I sort of wonder what is the status of that formula in your work, in your thinking?

TP. To me this formula describes a political relation, in the sense that both R and G are politically and socially determined and they don’t come from any abstract law. Maybe I should have been clearer about this. But for me it’s clear that the rate of return depends on the social arrangement and the institutions regulating the relation between owners and workers. It’s the same for the growth rate also. You know, there’s nothing natural in growth, it depends in the institutions in which you organise, I don’t know, science, invention, through which you organise fertility and the family strategies and all of this. These two macro parameters – R and G – summarise lots of institutions and millions of individual behaviour and strategic choices and so there’s nothing natural in there. I just think it’s a useful way to highlight an interesting social relation. All these concepts, rate of return, growth rate, saving rate, capital income ratio, all of these are social constructions, which are historically determined. The very notion of capital income versus labour income, it’s very abstract because in the real world there’s always some labour income into the capital income and some capital income into the labour. And across centuries you see owners of capital who keep telling you that it takes a lot of labour to be a good owner, you know, even the landowners in the 19th Century they are saying, you know, “Well if I’m not there to look after the peasants and tell them what to do with the land, what would happen to the land?” So you know, that’s labour, that’s not capital. And sometimes they are right, well sometimes they are a bit self-serving as usual. So the very notion of just capital and labour are just abstract notions because the real world relation between humans are multi dimensional, infinitely complex and there’s no such thing as a pure property relation as compared to a pure labour relation or pure sentimental relation. Everything is political, sentimental, everything, it’s all a matter of degree and all a matter of inter-relation. So the notion of a growth rate, there is nothing more abstract than the notion of a growth rate because the real world again is multi dimensional. When you multiply GDP by ten it’s not that you’re all going to consume ten kilos of carrots per bags of one kilo, you’re going to diversify what you consume, which means that you’re going to diversify your way of life, you’re going to have access to education, to health, to transportation, to culture, and not just to food. So when we summarise everything with one number, the growth rate or the rate of return it’s so abstract. So I think it’s useful only if one keeps a lot of distance with this concept. And I tried to do it in my book. I tried to say, look, this kind of language is useful only if we admit that this is a socially constructed, historically constructed categories and statistical categories. Only orders of magnitude are relevant, you know, exact numbers are always a bit misleading. And also this is just one form of language, which together with completely different forms of expression, more literary expressions can contribute to reshape our understanding of the world.

MS. That’s very helpful. Just again, to go back to this issue of how the new inequality is different from – though also similar to – the inequality of the Belle Époque. I mean one of the differences is that in that period there was a massive rise of socialist politics and there was more overt opposition to capitalism and accumulation of wealth and demands for welfare state and welfare services. You might argue that the last 20 years have not seen those equivalent political movements against capitalism – as we’ve seen in more recent elections in Britain, but also more broadly – Greece I guess is an interesting counter example. So how do you see the political, where are the political contradictions or tensions to go alongside the contradictions or tensions around the accumulation of inequality. Is there going to be a movement against this wealth accumulation or how do you see it?

TP. Yeah, there are different ways to analyse this contradiction. One way is to say, well look, the rise of welfare capitalism only happened after the war, after the Bolshevik revolution, after the big shocks of the 20th Century, and until 1914 the elite sort of managed to refuse changes. And I think that’s partly correct and it’s not entirely correct but it’s partly correct. There are many of the social movements of the late 19th Century, early 20th Century without these violent shocks maybe would not have obtained so much. The other explanation for this contradiction is of course today even if we see a return of some form of inequality and wealth, which resembles some of the Belle Époque, you know, average living standards, average access to social services, allocation is just much better than a century ago. So there’s been a lot of progress, which maybe is not up to expectations, certainly not up to what could be done in principle, but still you have progress, which makes a big difference. And finally I think the main characteristic of the new and new forms of inequality that we have today, the capacity of the elite to try to give a meaning and to give justification to this inequality regime, has grown a lot. The imagination of the elite to justify inequality is endless, particularly in the US. Maybe the difference between the US and Europe is that in Europe we associate extreme inequality to the societies of the past, you know, either belle époque or ancient regime, and we don’t see that as good. We see this of the past and this was not so useful, and this inequality was reduced tremendously during the 20th Century and this did not prevent growth from happening. So even Thatcher and Cameron don’t want to return to the world of 1910 or to the House of Lords of the 19th Century. Whereas in the US they’ve never had, except of course in a very special way under slavery, they’ve never had any experience with kind of extreme inequality regimes that we had in Europe. So I think maybe this makes them less immune to the kind of self promoting discourse of the elite that wants to justify inequality, and that are able sometimes to actually stigmatise the losers and the poor as being so undeserving that they should just not complain and they should just take it. And I think in Europe today we have this very high inequality past, which we don’t want to return. But at the same time, with the legal regime promoted by the European Union, we tend to put hope in the forces of competition and the forces of competition between individuals, between social groups, between regions, between countries, we put hope in force of competition to an extent which I think is well beyond any reasonable hope we can put in competition. And this is becoming sometime completely crazy.

MS. Yes, and one thing too, which I think might be relevant is the question of social class. Because again, when the Belle Époque period – and my background’s partly in history, and my PhD was looking at the development of working class politics in the early 20th Century – so those questions about politics and how you can test inequality was linked into questions about which class do you belong to, working class, feeling you belongs to the working class – as with E P Thompson and all those debates about labour history. You might argue, and indeed it might be seen to be coming from your book in a way, that those kind of class boundaries are now much less easy to draw – well it never was straightforward to differentiate the middle and the working class but you could do it. But now because of the multi dimensional nature of wealth means the boundaries are much less direct. So in London the classic case, you can be unemployed or you can be casually employed and quite possibly you have quite an expensive house if you’ve inherited it. And so different sources of capital can create complex class positions, which aren’t easy to bundle into ‘working class’ or ‘middle class’ or ‘upper class’. And insofar as that’s true, that arguably makes it more difficult for political parties to kind of mobilise on the basis of classes. I kind of wonder, you used the class concept a bit in your book, but my sense is that you don’t think it’s that important I think, would that be how you see it?

TP. No, I think it’s important. So in the book I use a lot this notion of income and wealth deciles in order to describe the different social groups. So typically I distinguish between the bottom half of the distribution with the top ten and the middle 40, which I call the middle class. And then in addition to the three groups, well first the three groups are not the same for the distribution of income, the distribution of wealth, so in fact you have nine groups if you want. And in fact within the top ten you want at least to distinguish the top four and then the top 1 and within the top one maybe the top 0.1. So you easily get 15 or 20 groups. Now, is this the right way to look at class? I’m not saying you should replace the language of the bourgeoisie and the proletariat with this language of cross decile distribution. But I think this provides a meaningful way to look, at the same time to recognise the multi dimensionality and the porosity of the fact that it’s a continuous class structure, and at the same time to recognise that yes, class do exist, in the sense that the magnitude of the difference between what the bottom 50 per cent owns and the top ten per cent owns.

In the end, the very notion of capital or wealth is a very abstract notion for half of the population because wealth for them means they have a checking account with maybe one month or two months in advance at most. So the very idea of property–, so at some point there is a quantitative difference in wealth shares, income shares become meaningful in terms of social differences in terms of status and in terms of access to a number of basic goods and capabilities. And so I think it’s important to sort of renew the approach to class. The advantage of this language of deciles of course is you can compare societies, which are otherwise incomparable. So you know, it’s a little bit the same thing as with R and G etc. you know, to some extent it’s an illusion, it’s an illusion of comparability because in the end, you know, what’s comparable between one percent in France in 1879 and the one percent in China today or the US today, these are just completely different worlds. And still I think this illusion is not entirely an illusion, I think it’s useful because it provides a form of language, which people can make correspondence, can compare societies and learn from this comparison and sometimes realise that the world in which we live is not quite the one we think it is. And so that’s–, you know, I think that’s, yes, to me that’s one way to try to renew an approach to social class.

MS. Good, I want to push you one final time on the politics side. You’re obviously well known for your work with the Socialist party in France, but it might also be said – well, this is my question, do you think, some people might say the socialist idea, socialist politics has to be rethought in such a radical way that the term’s almost meaningless anymore. Obviously we had the example of the whole third way project, the new labour project and such like. I mean how do you see socialist politics having a future? Do you still feel committed to that banner of socialism, and if so what kind of socialism would it be?

TP. Yeah, you know, I’ve never been a member of any political party and I don’t know whether I will be once, maybe not. I guess the way I view my own thinking about this is I was born in 1971, I turned 18 with the fall of the Berlin Wall. So I was born far too late to be tempted by communism or at least Soviet type communism. And I guess one of the big questioning I’ve tried to pursue since I turn 18 and I became adult is to try to think of sort of new ways to go beyond laissez faire capitalism that would prevent us from the kind of mistakes that we have made in the past. The fall of the Berlin Wall led us into a new wave of unlimited phase into a self regulated market, competitive forces, private property and I think we need really to rethink the way to make private property and capitalism the slave of democracy rather than the opposite. So to me, all the different ways to go beyond private property, to regulate private property are necessary and complementary. Sometimes very radical thinkers, you know, they don’t want to hear about progressive taxation because they say, “Well, it’s just redistribution, it’s not deep enough.” But to me, if you think the progressive tax on capital, I think if the tax rate is sufficiently high and very large property holdings, it’s quite a deep questioning of property rights because in a way that’s a way to make property a temporary rather than a permanent attribute. If you have £1 billion in property and you have to repay five or ten per cent each year, in effect you have to return five or ten per cent each year to the rest of society, in a way this is saying, you know, well you are the owner but you are not really the owner, you know, you return to society, for example. And in any case I certainly don’t think this is the end of the story, I think this is very much complimentary because progress in taxation can bring financial transparency and transparency about who owns what in companies, this goes very well together with other forms of more democratic regulations of property including worker ownership, including cooperative ownership, including moral rights and decision rights for workers. I think we also need public property in some sectors, so you know, public property, more cooperative worker property and progressive taxation of property, I think all these different ways to regulate property have a future. And if you look at the new sectors that are going to become more and more important in the future, which are not automobile production, the number of workers in automobile production is not going to grow in the future. So if you think of the other sectors, the education sectors, the culture sectors, the media, information production, all the knowledge economy in general. The view that the shareholder company with all powers to shareholders is the only way to organise human activity. I think it’s wrong in general but it’s particularly wrong in these sectors. Even in the US if the universities or newspapers will try to be publicly traded companies and to go to a stock market, it was a disaster and they all escaped from there very quickly. So I’m not saying the way Harvard University or the New York Times organises is the best way but still it’s different form of properties and the shareholder company, and there are new forms of property to invent. So I think we have to invent some sort of new radical thinking about property relations and the failure of socialism, in particular the failure of the Soviet Union, it’s not the end of the thinking, it’s the beginning of the thinking. For me, this is well beyond us.

MS. Just a couple more questions. One of them goes back to what you said at the beginning, about how your new work is trying to develop, to increase the range of your data in different and emerging countries. I wanted to ask you a bit about how you see your work linked into debates about globalisation because as you know, there’s a big debate in social sciences about methodological nationalism and whether we need to move beyond analyses which are premised on the nation state as being the core unit of analysis. And on one level you could say your work is kind of nationalist in that you collect national level databases and you compare them, so in this way you use a national frame of reference. But then of course on another level you might argue that you are looking at transfers between countries and capital movements. How do you position your own thinking in terms of those debates about how far globalisation requires us to develop new sorts of research repertoires, which go beyond the nation state or the national?

TP. Yeah, I definitely want to do more in the future along these lines and in particular in terms of changing the geographical scale at which we look at issues. So I do a little bit of that in the book in the sense that I stress the international inequality and the international property relations are probably the most violent inequality relation. Certainly at the times of colonialization by Britain and France where in effect a big part of the rest of the world was being owned and was sending capital income transfer to Britain and France, and they were so large that Britain and France could afford having a permanent trade deficit. And at the same time they kept buying the rest of the world. And this is a form of very violent relation. Of course property relations are always very violent, it’s always complicated to pay your rent to your owner, but when it’s a country paying rent to another country, you know, it’s something else. In the textbook of economics that’s supposed to be harmonious and mutually beneficial, but in the real world this all comes with political domination, otherwise you get expropriated pretty soon. So I think this can happen again in the future and to some extent this is already happening again with different countries being owner and being owned, that’s an important part of what I want to study more in the future. The other dimension is to change the scale, you know, should we look just at the nation state or should we look at the inequality in the city of London, the city of Paris, the city of New York, or should we look at inequality in Europe or inequality in the Middle East as opposed to Egypt or Saudi Arabia? And I had a recent paper where for instance we tried to measure inequality if we take the Middle East as opposed to Egypt to Iran, because many people after the revolution in Arab countries say, “Well you know, according to official inequality measures there’s not that much inequality in this country, so what are they complaining about?” And one response is, well first the data is not so good so we don’t really know, and next, even if we take as given the domestic measures of inequality for Egypt and Saudi Arabia, if we just aggregate them at the level of the Middle East, inequality between countries is so large between the oil rich country and the non oil rich countries that–, and if you take all citizens or say all adult individuals living in the Middle East, the share of total income between top ten per cent is maybe over 60%, which is more than in Brazil, which is more than in South Africa, and makes the Middle East look like the most unequal region of the world because of oil of course. And probably without the military protection of the West, you know, the oil would have been distributed a long time ago. And so that’s one way of trying to see the borders between nation states sometimes come from arbitrary decision by other countries to protect the view of their interests at one point in time, for instance putting the oil in small territories with no population, I don’t know, this is interesting in the long run. But in this case, you know, its frontiers are being redrawn, for instance right now. Consider the case of Europe. A big part of the capital stock in many Eastern European countries in effect is owned by either German owners or owners from different countries, so if you look at inequality, looking at Slovakia, Croatia, Hungary, Poland together with Germany, you can have a different picture of inequality than if you just take Germany or Austria or France as the basic unit. So changing the spatial unit of analysis to studying inequality like this is definitely something I want to do more in the future.

MS. I’m just trying to think how your analysis or how your kind of analysis would handle somewhere like London, you know, the reports say two thirds of the prime real estate buying in London is by non-British people who are parking their wealth in the city. So in your analysis will that wealth be attributed to the UK, or will it be attributed to the kind of nation, which the investor is coming from?

TP. Yeah, well in the formal definitions and statistical categories that I look at, you know, it’s all modern statistical frameworks are based on residence. So residence is supposed to be the place you spend more than six months, so in principle, if a part of real estate London is owned by people who don’t spend more than six months in Britain then that’s included in foreign wealth – back to the countries where they live. Now that’s the theory. In practise, you know, a big part of this wealth is just missing from the data that we have, and generally speaking our ability to measure across border asset position today is very limited and that’s a big problem.

This is the third and final part of this interview, which has been published on the TCS Website (part one is here and part two is here). The full transcript of this edited interview has been published by the LSE International Inequalities Institute here.

Readers may also be interested in the Theory, Culture & Society Special Issue on ‘The Social Life of Methods’ that Mike Savage recently co-edited with Evelyn Ruppert and John Law (TCS 30.4, July 2013)

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