On Common Utility - A Review of Capital in the 21st Century by Thomas Piketty

“On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London.” To all South Africans, the poignancy of the opening to the first chapter of Thomas Piketty’s Capital in the 21st Century cannot be understated. It has taken nearly two years to resolve the impasse that led to the deaths of 44 people and as yet untold devastation to lives far beyond those on the Marikana hill that fateful day. No other event in our recent history more succinctly captures the perpetual struggle between those few fortunate enough to own vast reserves of capital and the great many whose wealth is almost exclusively limited to their labour; and the disastrous consequences of the lack of political will to correct the growing distance between the two.

This is a voluminous 577-page treatise on the evolution of the concentration of capital since the 18th century, which has already famously been dissected by a barrage of reviewers – including Chris Giles of The Financial Times, which prompted a swift “calm yourself and have a seat” response from Paul Krugman, a Nobel-winner. There has not been so public a spat between economists of opposing traditions in recent history - a testament to the immeasurable importance of this work by Piketty.

For anyone with a second year economics pass, the first part of this gargantuan tome can at times be excruciating as he goes through a tortuous explanation of the main concepts and actors in his analysis. He makes up for this by using charming references to the novels of Jane Austen and Honoré de Balzac; where the trials, tribulations and triumphs of their heroes and villains (and much of the supporting cast) are used to illustrate the “orders of magnitude” of the wealth (and lack thereof) of the period. This is a device he regularly returns to throughout the book, which helps the reader maintain perspective on the unimaginable and perhaps sterile measures of concentrated wealth that Piketty deals with in his analysis.

It is true to say that a lot of his analysis contains what many historians and other social science scholars have been saying, possibly since the advent of free-market capitalism. These scholars have often been met with cold mathematical models and economic theory as a counterargument from economists, who were often infrequently required to back these arguments up with empirical evidence. For some proponents of economic science, the elegance and logic of economic models sufficed. Thanks to the paucity of data throughout the history of capitalism, any small sample of data that had been collected has easily been manipulated to conform to those elegant models and assertions of logic. This is something Piketty takes to task by applying the wealth of data that he has collected over nearly two decades to these elegant models and logic. The result is what has become one of the most popular books on political economy of all time.

The book itself is deceitfully named; Capital in the 21st Century does not quite offer a look into the evolution of capital for the next 86 years. What it certainly is, however, is a complete empirical study of the history of capital, at least as far as it pertains to those nations and territories for which the appropriate data exists. This particular limitation is of no real consequence to his analysis; the conclusions he draws and the recommendations he makes pertain to the US, UK, France, Germany and Sweden – countries representing, for the most part, the origins of the system of capital accumulation that informs prevailing perceptions about capital. He does make a valiant attempt to include the Middle Eastern oil producing countries, as well as China and other emerging economies - an attempt that can barely live up to expectations due to the general opacity of the data pertaining to these territories.

“His data is dodgy!”, the neocons cry. This complaint is slightly amusing, mainly because I have been a data analyst in the “efficient” private sector, in various incarnations, for more than a decade. The data is always dodgy. The art is in piecing it together and making something useful of it the best way you can; and to do so with as much transparency as can be mustered. It’s not easy, it’s certainly not absolutely accurate, but it gives tractability to observable phenomena that need explanations or require justifications. In this respect, Piketty is a consummate master and an objective observer who makes use of data from independent sources in order to verify his findings. It would drive even the most patient of salaried analysts to distraction to have to deal with the gaps in the data spanning the temporal and spatial expanses that Piketty dares to explore.

The reader, however, is repeatedly reminded not to  “make a fetish” the numbers presented; to merely treat them “as orders of magnitude, useful only for focusing one’s thoughts”. Nevertheless, this has not stopped other scholars – rivals and allies alike – from tearing apart his source data and, consequently, his treatment thereof. Piketty, ever magnanimous in his pursuit of rigorous discourse that advances knowledge and society as a whole, welcomes these challenges with one reservation: that the debate does not degenerate into a game of technical one-upmanship where scholars seek to assert their place in the terrain without adequately addressing the question of growing wealth and income inequality, the presence of which there is no doubt.

Thomas Piketty is inarguably a venerable scholar. The professor of economics at L’Ecole des Hautes Etudes Sciences Social (EHSS) and the Paris School of Economics, of which he is a founder and current associate chair, is somewhat of an overachiever. He attained his PhD in economics at the age of 22, whereupon he took up the position of associate professor at the Massachusetts Institute of Technology. The Nobel laureate, Joseph Stiglitz, made extensive use of Piketty’s work in his 2012 bestselling book, The Price of Inequality, which was an extension of an article he had penned for Vanity Fair magazine entitled “Of the 1%, by the 1%, for the 1%” that sparked the Occupy Wall Street movement.

One may be tempted to approach the book as I did with the hope (or apprehension) that it may somehow lead to a revival of Marxism as a viable solution to capitalism. One is quickly disabused of this notion within the early chapters of the book. Piketty is a fervent supporter of capitalism, and to a certain extent, also of inequality. At least insofar as the latter arises “on common utility”, as denoted by the quote from the French Revolution’s Declaration of the Rights of Man and the Citizen that heads the introduction. This may also hold the clue to the book’s popularity. The reality of wealth inequality is not new to anyone, so what is new in this book, one may wonder. What stands out the most is the debunking of old and trusted axioms regarding the shrinkage of inequality mainly in the US during the Baby Boom years. The conclusion he draws is that what may have seemed like a reversal of fortunes that resulted in the creation of a “patrimonial middle class” during this period was in fact the result of reconstructionist economics in the wake of the two world wars and no real permanent feature on the economic landscape. A conclusion that is sure to shake the foundations of many an advocate of the theory of “trickle-down economics” so favoured by one of our former presidents. The solution he proposes – a global tax on wealth - is so pragmatic in nature that it is almost sobering in it’s lack of the kind of idealist posturing that is prevalent in economic theory.

Whatever the flaws in his data, the manipulation thereof, his analysis, the arguments presented, conclusions drawn and final recommendations there is one thing I believe we all can agree on: there needs to be a more determined commitment to the collection and storage of economic data. This is one of the major justifications for his call for a progressive wealth tax, which he imagines could be set at a level so low as to merely act as a fee for the registration of wealth – if such is the decision a nation or region reaches through democratic processes.

The lack of reliable data to measure the volume and growth, as well as the concentration of capital is one of the reasons why the tension between those with the wherewithal to acquire capital and those without persists. Two years ago, 44 people lost their lives because Lonmin mineworkers demanded a monthly wage of R12 500 – a sum they assumed their employers could well afford, which their employers insisted they could not. One can’t help but wonder: had there been a tradition of making data available in a transparent way, as Piketty argues, would this standard wage dispute have reached a different conclusion perhaps? 

(edited beautifully by Mary Corrigall. a version of this review appeared in the Sunday Independent of the 10th of August 2014)