Capitalism, inequality and globalization: Thomas Piketty’s Capital in the Twenty-first Century

by PRABHAT PATNAIK

I. The Piketty Argument

Thomas Piketty’s book Capital in the Twenty-first Century embodies an immense amount of empirical research into the distribution of wealth and income across the population for a number of advanced capitalist countries going back for over two centuries. In particular Piketty has made extensive use of tax data for the first time to arrive at several important conclusions in his magnum opus which has deservedly attracted much international attention, both in academic circles and among the public at large.

The conclusions themselves are quite striking. Central to them is the finding of a U-shaped curve relating to a number of key variables, viz. wealth distribution defined as the share of the top 10 percent (or the top 1 percent) in total wealth in each of the countries studied; income distribution defined in a similar manner; and the wealth-income ratio. Each of these variables, quite high (or rising) until the first world war, undergoes a sharp drop during the war and remains more or less low until 1945, after which it begins to increase, and in the more recent decades particularly sharply.

The period between 1914 and 1945 in short represents a remarkable break, which, not surprisingly, created an impression that capitalism had become more egalitarian, that inherited wealth had ceased to matter as much as before, that the individual’s “ability” rather than patrimony determined in the new situation his or her position in the socio-economic hierarchy, and so on. To be sure, the bottom 50 percent of the population in most capitalist countries hardly owned much wealth at any time, and hence hardly earned any income from wealth; but the period 1914-1945 threw up a middle class which raised its share of wealth and income at the expense of the rich, of the very top decile for instance.

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