Thomas Piketty on Why Capitalism Isn’t Evil and Billionaires Can Still Exist
The famed French economist and author of “Capital in the Twenty-First Century” discusses his new film, why a progressive wealth tax is the way to go, and the COVID-19 crisis.
You may not be familiar with the name Thomas Piketty but you’ve surely heard his economic theories, which have been co-opted by the likes of Elizabeth Warren and Bernie Sanders. The Gallic Paul Krugman burst onto the scene with his 2013 book Capital in the Twenty-First Century, arguing that in order to tackle the growing issue of economic inequality, there must be massive redistribution via a progressive wealth tax of 2%, combined with a progressive income tax of 75-80%.
Back in 2014, when Piketty first met with Sen. Elizabeth Warren (D-MA), he says she was “skeptical” about his wealth tax plan; four years later, it became the cornerstone of her presidential campaign. And Sanders followed suit.
With the COVID-19 pandemic ravaging the global economy, and 22 million Americans out of work, there’s no better time to revisit Piketty’s opus—this time in documentary-feature form with Capital in the Twenty-First Century, now playing in Film Forum’s virtual cinema and on-demand. Directed by Justin Pemberton (with an assist from Piketty), the film explores the history of economic inequality from past to present, and how the reckless pursuit of capital has led to some of society’s biggest scourges, from colonialism to slavery to the current scapegoating of immigrants.
The Daily Beast spoke with Piketty about what the current novel coronavirus crisis has exposed about the economy, how we can fix it, and why Trump is a “perversion” of capitalism.
This conversation has been edited and condensed for clarity.
Capital in the Twenty-First Century is certainly a timely film given the current pandemic. What do you think the COVID-19 crisis has really exposed about our capitalist free-market system?
It has exposed how much inequality we have. We see today that there are very different consequences for people who have very small apartments, or very large apartments, or people who are homeless, or people that don’t have any savings and need to go out and work to pay their rent. It raises huge questions about access to health, access to housing, access to income support, access to property. You see all the discussion right now in the U.S. about a rent freeze, and whether we should ask people and small businesses to keep paying their rent even though they don’t have income because they’re not allowed to go and work. It questions all sorts of things about how we organize economic creation, how we organize society. This is something I’ve seen in history all the time: deep crises like this one challenge existing ideology and existing views about how we should regulate the economy, and they can lead to pretty big change. It’s too early to say, in this case, how far it will go.
The general feeling I stress in my latest book, Capital and Ideology, is that the real determinant of inequality across society and history is politics and ideology—much more than economic factors and technological factors. So, the change in ideology and how we organize property relations, labor-market relations, the tax system, the educational system, this is really the driver of most historical changes that I’ve observed in history across societies.
What do you think the appropriate government response should be to this pandemic? Many voices on the left, like Bernie Sanders, have floated $2,000 a month to people to keep them afloat as well as a rent freeze.
Universal healthcare should be the first response. I don’t know how much time it will take for the U.S. as a country to realize universal healthcare is more efficient than the current way the U.S. healthcare system is organized. Maybe it will take a very long time. I don’t know. But we know from the experiences of other countries that we’ve studied that universal healthcare insurance should be something that the U.S. should do. Now, a rent freeze and income support is going to be important. In the immediate future, these can all be paid for by increased debt and monetary creation, and I think it’s important, given all the money creation that’s been used to support the banking system and avoid financial collapse after the 2008 financial crisis, that it can be used today to confront this kind of crisis—a monetary policy that’s more for the people, and addressing normal concerns, not just the banking and financial system.
That being said, we are not going to finance everything in the long run just through debt and money creation, so we also have to rebalance the tax system, and I think the proposal of creating a billionaire tax that was made by Bernie Sanders and Elizabeth Warren in the campaign should come back to the center of the discussion. Remember, opinion polls were very supportive of the billionaire tax—not just from Democratic voters but Republican voters.
And the problem is that billionaires don’t make most of their money through taxable income.
We know that an income tax is not enough because, look at the famous example of Warren Buffett showing his tax return and revealing that he was paying a lower tax rate than his secretary. But it’s more general than Warren Buffett. The fact of the matter is, when you have very, very high wealth your income is not necessarily in line with your wealth, because you can accumulate the return to your wealth in some specific companies or holding structures, so that in the end, your fiscal income is not that high—and this is why people like Buffett pay income tax that is very small compared to their real economic income and as compared to their wealth. The wealth tax is a commonsense, equal way to ask billionaires to contribute in proportion to their means. It’s not saying that wealth is bad; wealth is an indicator of how much you can contribute to the public finances of your country. That’s true in general but it’s particularly true when you see health care workers and minimum-wage workers taking big risks and being paid very little. I’m not sure Trump is going to go in this direction but I think Joe Biden would be smart to borrow this [wealth tax] idea from Sanders and Warren.
You said wealth isn’t inherently “bad,” so do you not subscribe to the famous Balzac quote: “Behind every great fortune there is a crime?”
[Laughs] No. That would be an exaggeration. What I believe is that wealth is always connected in its origin. If I sell two million copies of my book, it’s not just because of me—it’s also because I’ve benefited from a public school system, all of the scholars who gave me good ideas. Bill Gates did not invent computers by himself. He benefited from the innovation and contribution of computer scientists, a lot of public investment in basic research, and public infrastructure in school. Wealth is always connected to its origin, and private property and private wealth and ownership is something that we in society invent because we think it can be a useful way to coordinate individual behavior, and indeed it can be a useful way to coordinate individual behavior provided we put limits on how much wealth and how much economic power one individual can accumulate, and provided we have a system of taxation and a system of public education which allows everybody to access wealth and property. I believe a lot in private wealth-holding, and want everyone to be able to access wealth—which is not the case today. In the U.S., the bottom fifty percent of the population owns less than two percent of total wealth. Is this the best we can do? I don’t think so. We can do better than that.
Is capitalism—and the pursuit of capital—inherently evil? Because the film draws a pretty direct line between the capitalist system and institutions like slavery and colonialism.
That was in the 19th century, so this was a long time ago. I certainly don’t think private property is evil; private property is part of the solution, but I think private property has to come with a set of institutions that allow for more equal access to property. The bottom fifty percent of the U.S., I would like them to be private property owners. In Capital and Ideology, I talk about a system of participatory socialism—and many people may not like the word “socialism,” so you can replace it with “social democracy,” if you prefer—but what I mean by this is certainly not state ownership. I mean private property but more equal access to private property, in that everyone can inherit a small amount of national wealth. We’re all supposed to have equal opportunity but the bottom two-thirds of Americans don’t inherit anything, while others inherit millions, sometimes billions. This has little to do with equal opportunity. And I think we need to have more worker participation in companies, which is similar to other countries in Germany and Sweden, where you have more worker involvement in the long-term strategy of companies, and more prosperity.
When you talk about worker involvement—or lack thereof—in companies, one of the biggest companies in the world has come under fire during the pandemic: Amazon. In recent weeks, they’ve fired workers who’ve attempted to organize in their factories against what they say are unsafe working conditions. And Amazon’s owner, Jeff Bezos, is making billions a day. At this rate, he’ll be the first trillionaire, which is pretty obscene when so many people are struggling.
I think they’ve benefited a lot from their quasi-monopoly position and market power, and I don’t think they’re treating their workers very well. The model of workers’ rights and worker participation that I had in mind was more along the lines of what you get in Northern Europe. In Germany, you have fifty percent of the voting rights on boards of larger companies that come from elected worker-representatives, and you give them shares of the company. Back in the 1950s, shareholders in Germany didn’t like that at all, but seventy years later, there’s a consensus that this has been pretty good—it has increased productivity and led to greater worker involvement. The sharing of information and power in companies is actually good for productivity in the long run.
Bernie Sanders famously said that billionaires should not exist. Do you share that view?
Well, in the system that I propose in my book, Capital and Ideology, if someone is very successful and sells a product that billions of people buy, they can become a billionaire—at least for a few years. But with the system I propose, a progressive wealth tax, you would return to a more reasonable level of wealth—like maybe $10 million or $20 million rather than billions. In a society where everyone would have access to a few hundred thousand dollars, some people would have access to a few million, some people would have access to a few dozen million. But people with a few dozen billion would return very quickly to a few dozen million, which is still a lot of wealth. The idea that we need a much bigger accumulation of wealth at the top to get more efficiency doesn’t stand historical scrutiny.
But if you cap wealth at “a few dozen million” dollars, as you propose, once an “innovator” reaches that threshold, what will then continue to motivate them to innovate and produce at the level that they were producing before?
In the system I propose, there is no cap—just a tax. If you are a billionaire, there is a 90 percent tax, so you will return quickly to $100 million. But you can always earn more. After some level of wealth, I think what you care about is not adding another billion. Because, what are you going to do with it? It’s more about, can you do something helpful for society? And this is what billionaires claim—they claim they don’t want the money for themselves, and want to be useful. So let’s take them at their word.
But you can’t possibly believe that to be true, that they don’t want to accumulate more wealth and are more interested in helping others. You don’t really believe that, do you?
Well, I think that they believe they don’t really need the money, because in fact they don’t really need the money. So, I think that they are sincere.
Really? I disagree.
The point where they’re not completely sincere is, although they don’t need the money, they want to keep the power. They would like the rest of the planet to keep asking them, until their last days, “Oh Mr. Gates, can you give me some money to do this or that?” So, they want to keep power. Look, I understand their viewpoint: everybody likes to have some attention, and that’s the highest level of attention you can get. But, is it useful? That is the question. If it was useful, we would have seen a bigger growth of the economic pie in the U.S. in the past thirty years.
But you know, the story according to which you just need more accumulation at the top and growth will follow just didn’t work, so I think people don’t believe in it, and I think that is the reason the Republican Party with Donald Trump had to move to a different narrative—much more nationalist and anti-migrant—because the sort of pure open-market, trickle-down narrative did not deliver the growth that middle-class America was expecting. In a way, everybody knows that this didn’t work. So where do we go from there?
Do you see Trump as a perversion of capitalism?
I think it’s a perversion of rising inequality, and it’s not a coincidence that with Trump in the U.S. and Brexit in Britain, these are the two countries with the biggest rise in inequality. When I wrote my book Capital in the Twenty-First Century in 2014, of course I could not forecast the election of Trump and Brexit, but in a way I was already saying that the risk with rising inequality is, if we don’t find a peaceful and democratic solution to reduce inequality, you will always have some politicians who will use the frustration coming from rising inequality to find other people—foreign workers—to blame. You can always find other people to blame for your problems. Nationalism is not going to solve the rise of inequality, is not going to solve the epidemic we have right now, is not going to solve global warming. These problems will require more internationalist and egalitarian solutions. I’m reasonably optimistic that we will get there in the end.
I’m more cynical than you when it comes to billionaires and how “philanthropic” they are. When it comes to Bernie Sanders, and I read your essay about the biased treatment he received in the media, and many billionaires mobilized against Bernie Sanders precisely because they did not want to sacrifice their wealth, and wielded that wealth to back other politicians running messaging against Sanders because they wanted to protect their wealth. So I question whether billionaires would ever buy in to this system you propose.
Oh no, I’m not expecting them to vote for the new system. I’m just saying, in the end, this will not hurt the economy. You know, if we had told Bill Gates when he was young and much poorer than today, if we had told him: Look, you’re not going to be able to accumulate $100 billion, you will only be able to accumulate $1 billion. Will he have said, it’s not worth it? I think it’s completely crazy, the idea that when people start a business, the idea of accumulating a few dozen million [is not enough], and I think this drives the economy, so this is all I was saying. The fact that they are going to protect their wealth because they want to protect their power, I’m not very surprised. What time is it now?
We’ll wrap this up in a sec. Just back to the billionaire question, because you wrote that the media treated Sanders unfairly, and the media is owned by the billionaire class. So what do you think it will take for a Bernie Sanders to break through all that noise?
I’m pretty optimistic in the end because, you know, things are already moving very fast. I had a public meeting with Elizabeth Warren in 2014, and at the time, she was very skeptical about the wealth tax—and Bernie Sanders was not proposing it. And now, I see that they’re proposing it, and those in Germany are talking a lot about it too, so I see an evolution of the conversation that’s been very fast. It was not enough for this primary election in the Democratic Party in the U.S., but things are going to continue to change, and I’m optimistic that in the end, people will learn from history, and learn from the fact that new challenges like rising inequality, global warming or the pandemic today require new solutions.
My latest book, Capital and Ideology, is very much an optimistic book in that I describe a long-run process in reduction of inequality, which I think will continue. It could take a long time. Bernie Sanders maybe could have been more convincing, could have been younger, so in the future maybe we’ll have a more convincing candidate taking a younger face, or who’s more diverse. We’ll see. History is full of surprises and this is not the end of the story.
Well, the thing history has really taught us is that there have been moments where the disparity in wealth got so great that the poor rose up and killed all the rich people. But that can’t happen anymore. So it’s about instituting this huge corrective without full-scale revolution, which is incredibly difficult.
But this is not the way it’s worked in recent history. It’s happened through the rise of social security, education, etc. It’s arrived in a relatively peaceful manner. Big events like World War I and World War II certainly contributed to accelerate some of this evolution but I think it’s much deeper than that, and you see other countries where wars did not play a big role or you did not have a big revolution and you still had a huge reduction in inequality. For instance, Sweden used to be one of the most unequal countries at the beginning of the 20th century, and then, through social mobilization and change in policy, became more equal. There are lots of experiments in history that have led to more optimistic views than the one you just described. But thank you for the discussion.