May 21, 2020

India has to come to terms with inequality: Thomas Piketty

India has to come to terms with inequality: Thomas Piketty

Thomas Piketty. FileThomas Piketty. File
Narayan Lakshman
20 MAY 2020 23:24 IST
UPDATED: 21 MAY 2020 12:08 IST

https://www.thehindu.com/news/national/india-has-to-come-to-terms-with-inequality-thomas-piketty/article31636033.ece


Nationalism is not going to solve the big problems, says the economist.

If the catastrophic human toll of the ongoing COVID-19 pandemic was the first wave to strike the world this year, its severe economic consequences – including loss of livelihoods of the poor across countries, leading to massive internal displacement and starvation in many cases – have been the second wave.

It is in this context that the seminal work of Professor Thomas Piketty, Professor of Economics at Paris-based School of Advanced Studies in the Social Sciences and at the Paris School of Economics and Co-Director at the World Inequality Lab and World Inequality Database, on the phenomenon of economic inequality gains additional significance today.

He shared his perspective on this subject, including on its relevance to India, with Narayan Lakshman. Edited transcript:

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Before jumping into an analysis of the current scenario, let us start with a fascinating idea that you explore in your latest book 'Capital and Ideology' – the notion of “participatory” socialism. Could you talk a bit about what it is, and how, if at all, you see it as an essential step to redress the ills of the free-market capitalism and globalisation that has overtaken almost every nation on earth?

The basic idea of participatory socialism in my view is where everyone has the power to participate in the economy. This means access to private property – I believe in private property and do not want state property or communism – which requires a more progressive tax system in order to reduce taxation on the poorest groups in society and possibly pay for an endowment or inheritance that everybody will receive. We say that we believe in equal opportunity, but we live in a world where the bottom 50% of the population does not receive any inherited wealth from the upper rungs, whereas some other people receive millions or billions.

The other dimension of participatory socialism is that workers should be able to participate more in the governance of their companies whether or not they have a share in the capital. To take an example of something that has been done already for some time in a number of countries, including pretty successful countries such as Sweden and Germany, since the 1950s in Germany, workers’ representatives had up to 50% of voting rights in the boards of the largest corporations. Of course, initially, shareholders did not like this in both countries, but 70 years later nobody is questioning this, and everybody feels that this has been a way to get more involvement of the workers in the long-term strategy of the companies.

Now, this question is asked a lot in the United States, in the United Kingdom, and in my country, France, where shareholders have managed to somehow resist this kind of evolution. But I think it could and should become the norm in the future. Generally speaking, one of the themes of my book, Capital and Ideology, is that if you look at the evolution of inequality over time, you see very deep transformation and you see in the long-run, an evolution toward more equality in particular through broader access to education and also through other fundamental goods including health, which is important.

We also see over the course of the 20th century, a process whereby we tend to rebalance the rights of property-owners with the rights of workers, consumers, and local government. The desacralisation of property is very important and has played a key role in the very process of economic development and growth. Historically, economic prosperity has come from educational investment, from the reduction of inequality and the view that we should always be in the pursuit of more and more concentration of wealth and economic power at the very top, and if only one or ten individuals had all the power, then we would have a lot more prosperity – I think this view just does not stand.

If you look at different societies historically – and mine is primarily a book of history, in which I provide a lot of historical evidence comparing various societies around the world including India, China, Russia, Brazil, Western Europe, North America and Japan – prosperity comes from equality and education and not from the pursuit of more and more inequality. That is the basic idea of participatory socialism – to use the good aspects of private property and the market forces, but to put them in the service of a much more equal and equitable development model and economic system.

In your book you have an entire chapter dedicated to the analysis of Indian political economy, including its history of colonialism. Does India have a balance of power between competing social groups that will allow the sort of radical change needed to truly tackle institutionalised inequality?

There are huge variations across India. In some States of India there have been much bigger efforts at making social investments and reducing inequality. A Kerala is in a different situation from a Maharashtra or a Punjab or West Bengal. There is of course a lot of variation.

If we look at India in general, there has never been a social revolution in the country. There has been a strong Independence movement and a strong attempt by post-Independence governments to confront the huge legacy of inequality coming both from ancient social systems of India and also from the colonial times, which contributed to rigidify in many ways, boundaries between social categories and caste. It is very difficult to say how the entire system would have evolved since the early 18th and 19th centuries without British colonialism, which put people into boxes for almost a century, with British colonial censuses distributing rights and duties depending on which box you are in.

Post-Independence governments have tried to confront this through quotas and reservations. In my book, I argue that they have had some success, in the sense that if you look at the evolution of inequality between lower caste India and the rest of society, it is still very large but has reduced over time more than the gap between African-Americans and the rest of U.S. society has. This does not mean that it is perfect, but before giving lessons to India, the rest of the world would also be well-advised to look at inequality in the U.S. and Western Europe.

That being said, all the efforts that have been put into setting up the system of quotas and reservations have sometimes come at the expense of the fact that there have been insufficient economic reform such as land reform, redistribution of property, investment in basic schooling facilities and health infrastructure. To an extent, quotas and reservations have been used, not explicitly but maybe implicitly, for a part of the Indian elite not to commit the resources and tax revenue necessary to create a broad-based health and education system.

When you compare with China, for instance, it is clear that one of the reasons for its higher economic growth and prosperity, is that despite all the limitations of the Chinese political system, there have been more resources invested in public infrastructure, in basic health and education facilities over the past three or four decades.

India has to come to terms with its problem of inequality. Very often, as you said, in history, this requires big mobilisation in a society where you have a large level of inequality coming from historical legacy. It is difficult to have mobilisation. But at the same time you see lots of examples of very unequal countries where people thought that they could never become more equal but this can actually change fairly quickly.

I tell the story of Sweden in my book, which many people view today as a very equal country. Sometimes people assume that it is due to their culture as being prone to equality, whereas the culture of India was prone to inequality, but I do not think that there is anything like a permanent deterministic culture or anything that will make a country equal or unequal for ever.

 

In the case of Sweden, it is very striking to see that it used to be one of the most unequal countries in Europe, if not in the world. Until 1911 you had a system of political and voting rights that were fully proportional to your wealth. So, you could have up to 100 voting rights in Parliament for the very high wealth taxpayer, as opposed to one vote if you were just at the beginning of the top 20%, roughly, of the wealth distribution. Within the top 20% you had this graduated system of voting rights, until 1911.  Even in municipal elections, there was no upper limit in the number of voting rights that a rich Swede would get. You had several dozen Swedish municipalities where only one individual had more than 50% of voting rights. Even corporations had the right to vote in municipal elections in Sweden until 1911.

This goes pretty far in terms of the sacralisation of property rights. If someone had told Swedes in 1910 that they were going to become a very equal country, nobody could have believed it. Then, what happened is that there was a big mobilisation from the trade unions, workers and Social Democratic Party, which imposed universal suffrage in the 1920s. The party won the election in 1922 and remained in power for a large number of decades, maybe until the 1980s and 1990s and put in place a completely different system where they used state capacity that was built in Sweden in the previous decade for completely different political objectives.

You had the state capacity of Sweden for the registration of income and wealth. Instead of distributing voting rights in proportion to these attributes, they designed a very progressive tax system in order to make you pay in relation to these attributes. They designed a system of public health and education like nobody had seen before historically.

Every country has its own kind of mobilisation and history. In India you also have lots of grassroots movements. You have lower-caste parties and a large number of socialist parties. Many different things can happen. History is full of surprise and crises like this one are also opportunities from which big change can happen.In any case, the big lesson from my book and from the analysis of India, Sweden and other countries is that there is not a deterministic force that makes a country equal or unequal.

At the heart of your analysis, and your book, is the notion that deliberation over ideas over the longer arc of time can change the political balance of power and resource allocation system, with a resultant effect on the level of inequality. Does this stand a bit apart from the idea that redistributive conflict – encompassing property rights and the political power to assign and enforce them – has historically been the driving force behind the development path of most nations? Or do both matter?

Both logics are at work. You have conflict between different interests and groups, but I also want to stress the dimension of learning, deliberation, and intellectual or ideological dimensions. I want to stress that pure class conflict in itself does not determine a unique outcome in terms of institutions, policy and legal systems. Your class position, though it is important, does not fully determine your view of the world about how the property rights, tax and educational and frontier systems should be organised. What kinds of relations should you have with other countries? What does it mean to be one country or another? What is the community of reference? There is an international and transnational dimension of the inequality regime, which is very important, in my book. The pure, class-conflict view of the world does not really allow for this rich set of ideologies to play their full role. In my book’s conclusion I talk about Marx and history as a class conflict and I conclude that we should view history more as a conflict of ideology and also as a process of learning about justice. I am not being naïve – I fully agree that class conflict is important and violence in history plays a very important role in all of these transitions.

 

But at the same time, emphasising the ideological dimension and the intellectual dimension behind class conflict is very important. The key difference is that if you give a bigger role for ideas and intellectual transformation, that means that democracy has a role to play, that indeed you also have a theory of elections and deliberation, and you should pay a lot of attention to how this is organised, how you form political parties, and the role of the media. You need an exchange between groups, that is very important.

One of the reasons for the communist tragedy in the 20 century was this lack of attention to democracy, to say the least, but also lack of attention to how the property rights system and the economic system at large would be organised, once you have abolished what you do not like. Given the magnitude of the catastrophe that happened, it is still of huge importance today. One of the reasons for rising inequality since the 1980s and 1990s has been the fact that the collapse of communism has contributed to a general dissolution of the possibility of another economic system.

This also implies that today we need to be very careful if we want to think about a different economic system – which more and more people believe in, if we want to overcome global warming and to face challenges of rising inequality. But we have to be very careful about its foundations and institutional underpinnings and try to see how people in various social groups can actually learn from experience, because there is a process of learning over time. It is not that anything can happen anytime. The story I tell in my book is a story of a long-run trend in reduction of inequalities as a rebalancing and opening up of rights, not only for property owners but also for other actors in society, such as workers and consumers. That is a process that could, should and will continue in the longer run.

Finally, we have in recent years seen the tendency towards the ideologies of nationalism, populism, protectionism and nativism, across countries. Do you think that this direction of systemic change that was happening before the COVID-19 pandemic, and was associated by some with disappointment with Bretton Woods institutions,could be exacerbated or turned back by the pandemic itself?

Different things could happen. In past, historical episodes there have been a multiplicity of trajectories. You have turning points such as today. There is a risk that the pandemic could reinforce pre-existing trends of nationalism and a return to the frontier and identity of the nation state. But I think this will not last forever, because in the end, nationalism is not going to solve the big challenges of the day, including global warming, inequality, public lands problems. It will require cooperation, some form of internationalism. Even in the short run, nationalism will not necessarily win the day if something else is being promoted and proposed by political actors. The problem that in the past three or four decades, or even starting with the Bretton Woods systems and reinforced in the 1980s and 1990s, as you said, and the rise of neo-liberalism, we have organised globalism, internationalism and the international economy in a way that has been very beneficial for the highest wealth and highest human capital individuals. But that is forgetting social and redistributive objectives. We have to rebuild internationalism in a different manner. For instance, you cannot trade or have free capital flow between any two countries, if at the same time you do not have some common regulation and taxation of the most powerful economic actors, or if you do not have some system or targets for carbon emissions, and taxing those who do not respect these targets, or if you do not have social rules about minimum wages. The problem is that many people today are still very attached to the idea of zero tariffs, zero tax on capital flow and flow of goods and services. I am not saying that we should tax them at 100% but zero is very small, especially if you have no conditions in terms of fiscal dumping, social objectives or carbon emissions. There is something really contradictory here, because when you have very long-distance travel for certain commodities, at the very least you should take into account the extra carbon emission coming from this travel. We should also take into account whether other countries, trade partners, are cooperating in terms of setting up an equitable tax system to tax the largest companies or multinational corporations. For example, if, as a country, I think I should tax corporate profits at 30% and my neighbour-country wants to tax corporate profit at 0%, they can do that. But then if they want to export goods and services to my country, I can say that their companies are at a tax deficit compared to my companies, so I will charge the corresponding tax on their exports.

It is very different from standard protectionism, because if the neighbour increases their corporate profit tax rate to 30%, then the extra tariff will disappear entirely. The purpose is not protectionism as such but rather to induce other countries to move in the direction that corresponds to our general social objective and development model.

If we do not move in that direction, then nationalism will win the day because it at least proposes to break with the current system of globalisation with no sort of regulation of any kind, and which people are not convinced by anymore. It all depends on what the complete set of alternatives being proposed to people. If it is business-as-usual neoliberalism versus nationalism, then nationalism will win the day. But if we have some new kind of internationalism based on more equality, more equitable development models, and the type of participatory socialism that I talk about in my book, the debate and the public discussion will be more complicated and I do not think nationalism will prevail, at least in the longer run

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