Book Review: Capital and Ideology by Thomas Piketty
Why should Conservatives bother reading over 1,000 pages by a French Democratic Socialist who doesn’t very much like the Anglo-Saxon economic model? Well, the truth is that often socialists, Marxists and other thinkers on the “left” have the most powerful analysis of our economy and society. Disagree with it as much as you like, but rarely does the “right” of the political debate provide as interesting critiques of the economic and social forces that influence our present.
Piketty is one of those thinkers who seeks to bulldoze his opponents with a wealth of data, rather than using rapier wit or clever analogies. This can make him dry to read, but if you stick with him the journey is worthwhile. Even if you disagree with him.
Piketty – a secret conservative?
Piketty’s great insight in this book is that there is no “natural” economic system or regime that is necessitated by objective economic rules. Piketty deconstructs a series of “proprietarian regimes” from the ancient societies to the present. All of them have “ideologies” which underpin their justification for why inequality is necessary. The most obvious example for Western readers is the Medieval “trifunctional” order of “those who pray, those who fight and those who work”. But even unto our present day, we still have ideologies which underpin and justify our current property regime most notably (and famously identified by Michael Young) the concept of the “meritocracy”.
We must have inequality, say defenders of the current order, because without it the engines of our economy – entrepreneurship and innovation - would stop working. Piketty is, therefore, dangerous according to believe that neoliberalism is the only system that works.
"Yet as Piketty himself demonstrates, we saw the highest levels of economic growth and development during a period of falling inequality and high taxes."
Yet as Piketty himself demonstrates, we saw the highest levels of economic growth and development during a period of falling inequality and high taxes. Some would say that Europe during this time was “catching up” with the United States so this made growth faster; lower inequality had nothing to do with it. But then how did the US (which was on the frontier) see such growth using similar tools to Europe? I am not going to play out this debate here and now, but the point is that Piketty gives enough credibility to the idea that inequality has hampered our economic performance in recent decades and we don’t need it to sustain growth.
This point about the historical and ideological contingency of economic systems may seem banal. But we live in a world where we are frequently told that there are “no alternatives”. As Piketty quotes, Tony Blair once remarked to a Labour Party Conference that asking for globalisation to stop was like debating whether autumn should follow summer. As Piketty points out, this is just rhetoric. Wouldn’t Medieval Knights terrorising their local peasants have said exactly the same thing about their economic order?
"Although Piketty would not like to admit this, given his frequent critiques of conservatism, he is actually drawing upon a very strong conservative principle. Ultimately there is no “universal” path or inevitable progress towards a common end point as communists, socialists and liberals believe."
Although Piketty would not like to admit this, given his frequent critiques of conservatism, he is actually drawing upon a very strong conservative principle. Ultimately there is no “universal” path or inevitable progress towards a common end point as communists, socialists and liberals believe. Every community is different and every history could have played out differently. Conservatives would agree but probably not Piketty’s own friends, who generally embrace a much more impersonal and deterministic world view.
The difference between Piketty and conservatives is that whilst he wants to see those contingencies as an argument for a new universal direction (which we shall come to later), conservatives embrace them. Culture and history create institutions can be powerful levers for changes, as I will highlight later. This is an insight that many modern day liberals and socialists chose to ignore.
Is Piketty a secret conservative then? No. But he certainly strengthens one of the core pillars of conservatism in his book.
Conservatives and inequality
In a previous life I once got involved in a Twitter debate with Andrew Lilico about the merits of taxing various sources of income. My view was that earned income was more merited than unearned income or wealth. Andrew’s view was that it was “unConservative” to believe that we should discriminate against different forms of income. I reference this because Piketty’s focus on inequality is bound to make many “Conservatives” uncomfortable.
This should not be the case, and Conservatives from Peel and Disraeli onwards have been concerned about this issue. The very term “One Nation Conservative” is a reference to Disraeli’s concerns about the “Two Englands”, rich and poor, that had emerged during the Victorian period. Tim Pitt has nicely summarised this issues in a paper for the Social Market Foundation on the need for Conservatives to focus on levelling up.
People on the right rarely want to challenge the existing order because of fears around the “Pandora’s box” it could open. Piketty references this “slippery slope” defence against reform regularly and is scathing about its merits. But is this a real argument against reform?
"The problem is that without challenging inequality, we are risking complete rejection of our current economic and political system...Conservative thinkers are realising this, most notably Nick Timothy in his most recent book and during this time in No.10, but sadly it appears to be a slow realisation."
The problem is that without challenging inequality, we are risking complete rejection of our current economic and political system. Piketty argues that high inequality was one of the reasons that the Great 19th Century Liberal economic order collapsed. Conservative thinkers are realising this, most notably Nick Timothy in his most recent book and during this time in No.10, but sadly it appears to be a slow realisation. The obvious truth is that you can have reform without necessarily leading to disaster.
Conservatives, most notably Burke, have accepted this and it is now a feature of conservatism that one often has to reform to preserve. The question is, preserve what? This writer would argue that improving the wellbeing of citizens, protecting our environment and augmenting the collective of the country is more important than preserving a historically contingent economic system. Given the structural weaknesses in the UK economy and British political system, surely the time has come for action.
Not only this, but as noted above, Piketty puts forward a powerful argument that inequality is hampering economic growth. There are numerous strands to this, from concerns about how inequality reduces demand in the economy to not tapping into full range of potential of citizens. The “Glorious Thirty Years” after the Second World are Piketty’s strongest data source – with higher growth reported during this period than during any other period in Western economic history.
The case against is that inequality is necessary because without large rewards (and a legal regime that helps you to keep them), people would never bother to create successful business, ideas or products. Why bother investing if it is just going to be taken away from you? There are ways around this challenge, but Piketty does not take them head on.
This is disappointing because as authors such as Wolfgang Streeck have argued, one of the reasons why the trente glorieuses ended was because of a “capital strike”. This was a revolt of investors and business leaders who were not prepared to accept lower returns or higher inflation which eroded the value of their wealth to preserve the post-war settlement. Piketty would probably argue, and does obliquely through the book, that this collapse was due to political failure rather than economic determinism. Leadership from states could have generated different outcomes. In his view, the necessary solution was creating a social democratic federalism across Europe and the world that could have shackled capitalism more effectively. We will come back to this later.
On a philosophical level, Piketty could also point to the fact that human beings are motivated by a range of factors. Wealth is one motivation but not the only one. As behavioural economics has demonstrated we are as much concerned with status and conceptions of fairness as we are about absolute financial outcomes. People can be encouraged to do the right thing, even if it means sacrificing their own resources. Otherwise how would charity exist?
Many business leaders claim that what inspires them is not making money but creating products and services which are the best or solve significant social challenges. Maybe we should take them at their word.
The limits of co-management
The Financial Times’ review of this book attacks Piketty for not coming up with practical solutions. I think this is grossly unfair as he puts forward many ideas, and indeed the last 200 pages are dedicated to exactly that – solutions. One man’s practical solution is another man’s pipe dream, but that is by the by. It is unfair to attack a scholar for trying, just because one doesn’t agree with him.
One area that Piketty does look at is embracing co-management models from Germany and Scandinavia to make businesses better run and improve the incomes of workers. It is a powerful argument and Theresa May’s government did propose corporate governance reform to achieve that end in the UK.
But Piketty disappoints by not looking more fundamentally at the nature of business. Business is, as readers of this blog will know, one of the core institutions of capitalism. And we are living in a Golden Age of diversity in business models. Social enterprises, co-operatives, trusts and other models are being developed to find ways to channel business dynamism into public good. Sticking workers on boards is one thing, but without fundamentally changing the nature of the firm, it is unlikely to see clear results. Just look at what happened at VW in Germany, a “co-managed” firm which ended up being involved in one of the biggest corporate scandals of recent times. I have touched on these issues more thoroughly in an article for Social Enterprise UK.
Piketty could have done more to draw on the vibrant social economy in Europe, but perhaps he didn’t feel he had the knowledge to do so. Tackling “the firm” and its contributions to inequality could perhaps be his next book?
"For One Nation Conservatives, business reform is an open goal. Updating the corporation for the 21st Century is something that would cost the state little but would have big returns."
For One Nation Conservatives, business reform is an open goal. Updating the corporation for the 21st Century is something that would cost the state little but would have big returns. We know that business has the power to achieve great things but is not reaching its full potential. Reforming business is a way of avoiding the development of a “big state” and at the same time avoiding rampant inequality and social division. Piketty is right to highlight worker representation, but we need to go much further than that considering corporate law, tax and company reporting.
The irony is that the UK is a world leader on new models of business, such as social enterprise, but is not utilising that comparative advantage.
Piketty against the nation-state
Concluding this review is one big area of disagreement that this reviewer has with the author. This is the role of the nation-state in either hindering or helping against the rise of inequality.
Piketty is dead against the nation-state and his view is that nation-states create an artificial limit on action which transnational capitalism is able to exploit. Nation-states are the barrier to action and need to be overcome. He argues that we should move towards a “social federalism” which breaks the world up into concentric circles of governance. Tax and climate change would be elevated to a higher level (i.e. Europe) – reflecting the international nature of capitalism and these challenges. Treaties of “co-development” would be signed to lock all parts of the world together.
It may not surprise readers that I thoroughly disagree with the author about the need to “transcend” the nation-state, for several reasons.
Firstly, it is poor reading of history. Piketty is a supporter of the Attlee Labour Government and its creation of the NHS and the Welfare State. Yet this was a Labour Government which was very much “nationalist”. Attlee and most members of that Labour Government would have considered themselves internationalists, but also patriots who believed fundamentally in the importance of the British nation-state. As David Edgerton noted in his book “The Rise and Fall of The British Nation”, the Labour Party during the 1940s and 1950s was profoundly motivated by the concept of the nation and national interest. It was this, rather than socialism, which not only directed policy but also won public support. It was also during this period that many of the international institutions which Piketty is likely to support such as the United Nations and European Union were conceptualised and created.
Secondly, there is no evidence to suggest that strong national identities or nation-states are barriers to action. Piketty references the failure to create an international regime for monitoring wealth and tax transparency. But it is not clear that nation-states are the barrier to that. Yes, there are some states (such as Luxembourg) which see their own self-interest served in holding up international agreement. But as Piketty himself notes, the United States was able to force through new rules on tax transparency (FATCA) and the United States has a very strong sense of national identity. The idea that businesses and individuals are undermining the nation through tax avoidance and transparency is arguably one of the strongest political motivators for action, rather than more porous ideas of “international justice”. One can argue about whether nation-states are larger enough to act, but the evidence suggests that where there is a will, there is a way.
"Piketty makes the mistake of confusing “nationalism” with a certain ideology or set of beliefs. Nationalism is a loose ideology, grounded in only one concrete area, the idea that action should be motivated by achieving the best outcomes for a certain political community."
Piketty makes the mistake of confusing “nationalism” with a certain ideology or set of beliefs. Nationalism is a loose ideology, grounded in only one concrete area, the idea that action should be motivated by achieving the best outcomes for a certain political community. This can encompass a whole range of policies. Some nationalists are in favour of tax cuts. Others want to see tax rises. Some ignore inequality. Others think it is one of the great challenges of our time.
Tapping into national identity and mobilising it to achieve certain outcomes is, in the opinion of this reviewer, the most effective way of mobilising people to act in interests of the planet as a whole. People want to feel proud of their country, and showing global leadership is one way to achieve that. Great British politicians such as Gladstone, Churchill, Attlee and Thatcher have showed how it can be used in various guises from calling for humanitarian action to shaking up the global economic order. Notably it was the hero of the left, Aneurin Bevan who called for Britain to become the “Mecca” of the world and use itself as an example for the rest of the world in how socialism could generate positive results for workers and the nation as a whole. National identity is one ideology which has the power to transcend the usual divides of politics to deliver results. Yet Piketty, for personal reasons, doesn’t want to use it.
We do need to see more international action, but this will only come if people believe that this is in the interests of their political communities, not by people lecturing them to put them to one side. Piketty half-accepts this in his own solutions, but calling for the development of “assemblies” that combine national politicians with transnational politicians (such as MEPs) as a way to give strength to new institutions. This reviewer is not convinced that this would work, but it is a recognition of the enduring power of national identity that Piketty feels he has to compromise on his vision in this way.
It this last issue, the role and future of the nation-state, that in the end makes this book a little underwhelming. But, as I hope that this article has showed, there is a great deal within it that should be of interest to One Nation Conservatives, and indeed everyone.
Most importantly, the book is a message of hope. We can, and we have, found ways to manage our economies and societies better. We can do so again.
Most importantly, the book is a message of hope. We can, and we have, found ways to manage our economies and societies better. We can do so again.