Thomas Piketty: Blame inequality for Trump and Arab Spring
Thomas Piketty is the rockstar of economics, the new Karl Marx. Or so he has been described after his best-selling book Capital in the Twenty-First Century, which tackles the huge imbalance in the relationship between growth and wealth distribution since the 18th century, was published.
The book, which has since sold millions of copies and was translated into several languages, most recently into Arabic, was called "the most dangerous book in the world".
Many hopes have since been pinned on Piketty and similar voices to develop new post-Capitalist economic theories that would address the structural flaws in capitalism, especially in the wake of the 2008 global financial crisis.
The New Arab and its Arabic edition Al-Araby al-Jadeed sat down with Piketty for a wide-ranging interview in Beirut, where he gave a talk organised by the Issam Fares Institute of the American University of Beirut, and launched the Arabic edition of his book.
We asked Picketty about the implications of his inequality hypotheses for the Middle East and the Arab Spring, and overviewed the wider framework of his theories, criticisms of his work and his views on the economic implications of major events this year led by the US elections and the referendum on EU membership in Britain.
On the subject of Marx, Piketty said he had indeed read his work, but pointed out that his book was more interesting, data-rich and smoother to read than Das Capital.
On the rising anti-immigrant sentiment and Islamophobia in the West, Piketty told The New Arab these are in part the result of a deliberate tactic by wealthy elites to turn the working class people against one another.
The world-renowned economist said that despite recent reports of disillusionment with neoliberalism within the International Monetary Fund, he does not take the IMF seriously on this and the subject of inequality.
The Middle East is the most unequal region of the planet, Piketty further told The New Arab, because of the "unbelievable" concentration of wealth and resources in the hands of the few, including the oil states with low populations.
Piketty also criticised the West for its hypocrisy towards the Arab regimes, citing its support for Mubarak, Ben Ali, and now, Abdel-Fattah al-Sisi despite -- or rather because of -- their fundamentally unfair economic policies.
|Piketty also criticised the West for its hypocrisy towards the Arab regimes, citing its support for Mubarak, Ben Ali, and now, Abdel-Fattah al-Sisi|
The New Arab: Why did you choose to tackle inequality instead of economic growth?
Thomas Piketty: The two [go] together. When you look at the history of economic development you want to look at the growth of economic production, but you also have to look at who benefits from this growth.
If you have very uneven growth and large segments of the population do not benefit from growth then what is the point of having growth? Therefore, you really want to look at the two and it has always been like that.
Simon Kuznetts was the first economist to compute the national accounts of the United States. He was the first one to compute the estimates of GDP and then his next step was to use the same data income data, tax income and other data to compute the share of the different groups in the national income. It's perfectly natural to look at both.
I am pursuing this tradition at a much larger scale. We were able to collect data from much longer periods, many more countries than what was done before, to get the relation between growth and income distribution.
TNA: IMF voices were recently questioning the neoliberal consensus saying neoliberalism was leading to inequality. Are we seeing a mainstream shift away from neoliberalism?
Yes, I am happy that they are realising this but to be honest they have a long way to go. When you see what they do when the IMF has a programme, for example in Egypt in the next few years -- I hope they do not -- [there is a problem]. What they did in Greece, the kind of reform there, the kind of tax reform they want is very regressive I think they propose no change. The IMF is still a very conservative institution. Now they and the OECD try to pretend that they care about inequality, about transparency, they want to fight tax havens. I do not take them very seriously to be honest.
TNA: Do you think this is about ideology?
Oh, yes. They are still very much in a strong ideological phase, with unlimited [belief] in self-regulating markets. I think this is coming to an end slowly and gradually but it will still take time. If you look at this from a long-term perspective, after the fall of the Soviet Union and the rise of Reagan and Thatcher, the world entered in a phase of self-regulating markets. Now the financial crisis of 2008 has changed this a little bit, but only a little bit because in the end despite of what the IMF or the OECD or the G20 are saying, very little has been done to fight inequality.
TNA: Maybe the crash was not big enough.
Yes maybe. And also, as I say in my book, the big difference with the crash of 1929 is that the crash of 2008 came at a time when you could accuse the governments of being too big -- of course you can also accuse the market of excessive deregulation. In 1929, you could not do because governments back then were small. Therefore, that is why there is a complex debate that we have today. And some people still believe that the priority is to get more power for the markets...
Bigger governments are not always good -- but at this stage you cannot have unlimited capital flows without any counterpart in terms of financial transparency and regulation. I am in favour of free trade and free capital flows but you need some counterpart. At least to know who owns what and where [it is]. If individual countries do not know who owns their companies and buildings, because it all takes place through tax havens and offshore companies, in the end you cannot conduct any regulation or taxation and you end up overtaxing the people who cannot move -- that is the middle class and lower [income] groups -- who cannot put their money in tax havens. This is a serious danger for our social contract and social fabric because those in the middle in the bottom will not accept for very long to pay more than people at the top.
|If you don't manage to solve peacefuly social-economic problems then you can always find other people to blame: foreign works, immigrants, Muslims, Mexicans in the case of Donald Trump|
TNA: But when the US and the UK are the biggest tax havens in the world, and are the leaders of the financial system, it is hard to expect them to act against their own elites and interests, correct?
Piketty: Yes I agree but they cannot say it [explicitly] like that. So what is interesting in political and democratic debates is that even when you are captured by special interests, you cannot present it like that. They have to say [things] differently.
Their official discourse is that they want to fight tax havens. In fact, they don't do much because I think in the end the lobbies to benefit from financial opacity are stronger. But I think it is possible if there is sufficient political mobilisation, to face these governments with their contradictions.
TNA: But with Trump and Sanders in the US, and the EU referendum in the UK, if they both vote to the right, do you think this is dangerous?
Yes this is very dangerous. But in my country too, if France goes to the right, it's also very dangerous. In every country you have a nationalist response or a more progressive response to rising inequality.
The nationalist response takes different forms but basically it's always the same: if you don't manage to solve peacefuly social-economic problems then you can always find other people to blame: foreign works, immigrants, Muslims, Mexicans in the case of Donald Trump...
The strategy is to tell the poor White your enemy is not the rich White, it is the poor Black or poor Mexican. This is a perfect strategy if you are a rich White person to say: I am not your enemy so don't try to make me pay more [tax].
Now the leftwing response, you know Bernie Sanders is very interesting. the leftwing response in Europe however does not always come up with convincing responses. You know in Greece like Syriza. In Spain [Podemos] but I think they are far less dangerous than the extreme right.
I think European Commision leaders, French and German leaders, should try to work with Syriza and Podemos instead of pushing them to the extreme. If you don't you end up with the extreme right, which is much more dangerous than the extreme left. At some point you will have to choose. I'm sad about France and Germany; their attitude towards Greece so far has been really not very good.
TNA: You were criticised including for making few mistakes in the math and not publishing the sources of some numbers used in your work by publications such as the Financial Times.
I don't remember any mistakes. But look the book has been incredibly successful. This has generated a lot of debate, which is perfectly fine. The problem is that at some point the book was so successful that everybody wanted to write about it, including people who never opened the book.
This sometimes led to wrong conclusions. The Financial Times, who said there were mistakes, really seem to be very confused. First they say they found some mistakes and then they gave me the prize for the Best Business Book of the Year.
I'm very grateful to them and everybody for the free publicity [laughs]. But we've put online all the data that has been in the book from the very beginning.
The book is a snapshot of the data we had at one point of time. I don't think there were mistakes but certainly it was not complete. This is while we are still collecting data. I agree with all the people who believe we still know too little.
I'm trying my best so we know more in the future. if anybody with a financial background wants to contribute I'd be happy. There have not been any particularly constructive contributions. If anybody wants to contribute everything is online.
We have this website, "The World Wealth and Income Database", where we have new countries almost every week. The best impact of the publication and success of the book, and the controversy and debate is that more countries have been sharing their fiscal data. If you now go to the website you will find that there are countries which were not covered in my book, but which now have data including important countries like Brazil, Mexico, Korea. New data has been released by India which the prime minister there said was because I requested it.
In the Middle East, it's [access to data] very difficult. I have a student who is working on Lebanese data right now.
TNA: The World Bank in a report downplayed the role of inequality in the Arab Uprisings. Is inequality in the Arab World really a “mystery”?
Piketty: I think the [growth] indicators we had underestimated inequality in the Middle East. It is wrong to say that the Arab Spring had nothing to do with inequality. First: there is little transparency about income and wealth in Middle Eastern countries.
If you take a country like Egypt, you have income tax but no income tax statistics. Even if you want to know the numbers and not the names, [like] how many people who earn between one million and two million Egyptian pound... is it wage income, business income, or rent. I want the same from Lebanon. There is no country in the Middle East which publishes this data. So what's the point if you have income tax laws, parliaments, media, if you don't know these numbers?
This is very important because even if the tax system is not working perfectly well. even if there is a lot of tax evasion, you want to see the data. My experience with working with other countries is that the income tax data is at least more credible than what you get in the official numbers which the governments and World Bank/IMF use to measure inequality, which vastly underestimate the level of income.
So we need more transparency about this. The other point...is that even if we accept that there is low income inequality in World Bank surveys, the perception of inequality is not necessarily confined within these countries. People have a broader view. Young people in Cairo or Tunis might compare their situation with people in other parts in the world, at least in the region, if you look at inequality in the Middle East as a whole.
What we find is that this is by far the most unequal region in the planet. more unequal than Brazil, more equal than South Africa Why? because even though you don't have the legacy of the apartheid and slavery, you have an incredible concentration of wealth and resources in very small states with very small populations. This creates a very high level of inequality.
|It is wrong to say that the Arab Spring had nothing to do with inequality|
TNA: Are you referring to the oil-rich states?
Yes of course. If you take the Middle East as a whole, there is a very strong concentration of wealth in oil states. In my book I mention that the total education budget of all of Egypt, a country that will soon have 100 million and already has 90 million peoplem, their total budget for primary and secondary schools and universities, is one hundred times less than the total oil revenues of a country like the Emirates or Qatar, where the total population is [less than] a million. This is a few hundred kilometers away. The oil states sometimes want to look generous and say okay we can give you money, but this is an extreme situation [that cannot be resolved this way].
TNA: What about the relationship between inequality and the revolutions in Arab states?
Well I think there is a link. The perception [was] that the government of Mubarak or Ben Ali were keeping some of the wealth for a small group close to the regime while the rest of the population was living in terrible conditions not only as compared to these local elites but also as compared to the broader world.
Here, the attitude of the Western regimes contained a lot of hypocrisy With France telling people in Tunisia or Egypt: maybe Ben Ali and Mubarak are not very good but this is the best you can get. If you try to change it will be even worse. This is the same thing France is saying to people now in Egypt with Sisi: This is the best you can get.
I don't think this is the best they can get. The governments in the West and France are protecting these very unequal Middle East models...They don't at all push for more equitable models of development in this region.
I was born in 1971, I became an adult with the fall of the Berlin wall. The other important historical event was the Iraq-Kuwait war. I'm not saying it was justifiable for Iraq to invade Kuwait but sending millions of troops just to give back the oil to a very small population without thinking about a more equitable distribution of oil resources was a big mistake.
All these frontiers are very arbitrary. I'm not saying it's simple to change frontiers. Ideally you would have a peaceful political integration. An Arab Union like an European Union where people would share resources and invest in education and infrastructure.
TNA: Is this not a taboo issue? Some say regimes in the Gulf moved to fund the counter-revolution against the Arab Spring because soon Arabs would demand their share of the oil.
This is a taboo but this is the elephant in the room. It is complicated. Everybody in the world is entitled to clean air. For climate change, we can say someone in Tunisia has a claim to say to China: you are polluting too much. For oil it's complicated. But the idea of global public good is starting to [gain traction]. It has to be progressive. We are not going to get a world government right away.
I am for an Arab Union where you share resources. If you take the European Union, it's not like we split equally all the tax revenues from Germany and others. But at least you have reforms, organised re-distribution. It's not like you have to beg for favours [from wealthy states].
The European union is not a [perfect] model but it is possible for old nation states to agree re-distribution to have some regional community. I think one day this will be the issue facing the Arab world.
|I am for an Arab Union where you share resources. If you take the European Union, it's not like we split equally all the tax revenues from Germany and others. But at least you have reforms, organised re-distribution|
TNA: You didn’t really announce that you oppose capitalism, while you insisted in lot to occasions that you haven’t read Marx capital. Is this your passport to the minds of world capitalists to be accepted as a neutral writer with no prejudices?
I think my book is a lot easier to read than Marx. Marx's works are very theoretical, very speculative, with very little data. But of course, I read his work.
I want to go beyond capitalism. I want to contribute to thinking about new forms of social organisation. Particularly new ways to organise property relations. We need more public property, more forms of democratic governance, and new ways to organise intermediate forms of property between public and private property.
I also want to restrict the persistence of extreme concentration of private property through for example progressive taxation and inheritance tax, which is a way to make large private property temporary rather than permanent.
TNA: You say that inequality is a main feature of capitalism yet you present recipes to guarantee its survival by reforming it. Would you be afraid to say that capitalism is the problem?
I believe in some forms of capitalism and in some forms of private property, but we want capitalism and private property to be the slaves of democracy rather than the opposite. So you want strong democratic institutions that can control capitalism and that can put the powerful market forces in the common interest. We should not start from the presumption that market forces are naturally in the common interest. Some of these forces are good some can be terribly bad. The danger is laissez-faire capitalism, the view that we should let these forces lead us to wherever [they want].
TNA: Are we seeing the emergence of a new theory of economics that draws from both socialist and capitalist theories? Is there hope about developing new economic models, and if so, which country is the best candidate for this?
We all like the model of Sweden and Denmark at the same time it's cold in Sweden and Denmark...we prefer to be here in Lebanon [laughs]. We have to invent new models, but what Denmark and Sweden show is that you can have a big government and be very productive and efficient and have very equitable distribution. If it was enough to have a small government to be rich then Bulgaria and Romania would be richer than Denmark and Sweden. What we learn from this experience is that if you have efficient government efficient public services, then it would be perfectly fine to have a big government.
But this is not a perfect model. There are new challenges today with global financial capitalism. For example tax havens, which these countries are too small to solve. This is where there is a need for organising bigger political communities in a democratic way. At the European level, Arab level, north American level, south American level. If you want to keep globalisation going you cannot regulate globalised capitalism with small nation states, you need to have broader entities. But at the same time you want them to be democratic. You don't want to have these less democratic organisations making these treaties, which are sometimes secret.
TNA: If inequality doesn't get resolved, would you say it could lead to structural collapses or even a new world war?
The main threat for me is the rise of nationalism, anti-migrant anti-Muslim sentiment all these politics of hate. I think they are the outcome of rising inequality in many ways. In my country with the rise of Marine Le Pen and the extreme right. This is very frightening, very dangerous. This is not war but this is a lot of tension that sometimes can go as far as war.
TNA: Do you think kids, youths should be more financially literate? Isn't part of the problem that a majority of people don't understand economics and economic policy?
I think we should have a different teaching of economics. We should teach economics in a way that is closer to the social sciences. We should teach more economic history. I think the success of the book shows that there are many people in the world who are tired, who want to know more about economic issues, but they find that this is too complicated for them. Sometimes economists have a tendency to use too many technical terms and sophisticated mathematical models but very little empirical or historical content. This has to change if you want to contribute to economic literacy.
TNA: Finally, how would you critique your own book after its publication?
It has many limitations. Probably the main limitation is that it is too Western-centered. It deals too little with the rest of the world. That's partly because of the lack of data, this is my main excuse. But it's not just an excuse, it's true. It's also that I was very influenced in my research with what happened during the revolution against inequality in the 20th century with the impact of the war, the Bolshevik revolution, Roosevelt, Reagan and the welfare states. This is interesting, and it has important lessons also for the Middle East and Africa.
But this is not the end of history. 20th century Europe is interesting. But what is happening in Asia today, in India [also is]. I am now working more in other parts of the world and I hope my next work will be less Western-centric.