Once I had a chat with a fellow Nigerian about the social injustice implicit in the idea of accumulating monetary interest. His reaction was shock and he was stupefied. He responded “why should I keep money when it wouldn’t work for me”. How can two such people continue a meaningful conversation on this matter? While being aware my religious exposure may have nudged me to think about such matters, I wondered whether to continue engage my chat mate from a historical analysis of his beloved interest or from philosophical inquiry of past sages; which I know so little yet enough to pass the point across. He paralyzed me when I understood that his was such a dogma that chats laden with unreferenced historical claims and modest philosophical arguments could not shake.
Prior to reading Piketty (Capital in The Twenty-First Century), I came across a few review articles on the book which encouraged me to read the book. Now that I have read the book, I can’t quite remember what the reviews were about but I remember the criticism were mild and mostly directed at how difficult his proposed solution would be. I was tempted to make an artsy review which would simply be a fresco of quotes by the author, so that the gist and treasures of the book are captured. If I have more time to myself I would experiment with that in the future. Until then this commentary must do. The reader may wish to jump to subheadings of interest because they could be read independently of each other.
North versus South, Hausa versus Yoruba versus Igbo… these are the sides we are conditioned to choose to identify with. A perenial issue in Nigeria, which threatens its nationhood, has been the North-South divide the most palpable (in history) being Igbos versus other Nigerians. This is a lasting legacy of the 1967 civil war which has been inherited and is being zealously championed by many who were not even born or merely infants at the time. Piketty is faced with a similar situation being from the home of the French Revolution, and Europe where theories of Capitalism and Communism were articulated and defended zealously. However he is a model for Nigerians, he embodies a progressive mind towards development who seeks a goal without the baggage of competing ideologies in their popular forms. Piketty represents a consciousness of distribution rather than simply accumulation which could sit comfortably in the mainstream (Capitalism) without discomfort of ideological mismatch. He doesn’t come in lashing capitalism or communism, or with a lot of bias. He is basically saying: here is the data, what is the best explanation for it, and how do we reach a more just society based on this data?
I belong to a generation that turned eighteen in 1989, which was not only the bicentennial of the French Revolution but also the year the Berlin Wall fell. I belong to a generation that came of age listening to news of the collapse of the Communist dictatorships and never felt the slightest affection or nostalgia for those regimes or for the Soviet Union… I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. – Piketty, Capital in the Twenty-First Century
The clash of communism and capitalism sterilized rather than stimulated research on capital and inequality by historians, economists and even philosophers – Piketty, Capital in the Twenty-First Century
Moral Ends as Motivation
Capital in the Twenty-First Century is not a difficult read. Simply having interest in social justice and basic understanding of mathematical equality-signs would suffice. The slightly intimidating bits are data analysis which are always broken down in the most plain language, but would slow one’s reading speed simply. Perhaps one would expect a book with such a title to be more focused on economics than social justice. That is not to say there isn’t basic economic concepts, but even those are assumed that the reader has no background them. This approach reflects Piketty’s notion of what the discipline of “economics” is about. It is not simply descriptive as the other social sciences, it is prescriptive. Therefore in studying economics, one should seek to answer the question: how could resources be distributed in the most just way. Perhaps what people assume to be economics is either its unscrupulous counterpart or Finance. Piketty in so many places complains about the presumption of economists to be “scientists” hence the over indulgence in mathematical equations as if to arrive at certainty. Social Sciences however are not concerned with certainty, but with what is most justified. A brief class in economic modelling immediately betrays the multitude of assumptions which are baggage that come with those models; not to mention breakthrough in behavioral psychology where the classic economic rational being is hardly existent. So if social justice is the end, then having this moral motivation is sufficient to get you started on the book; any little math or economics that one learns along the way is simply a means to that end.
Social Science 2.0
Piketty dislikes the name Economic Science, he prefers Political Economy due to its normative and moral aspirations. Therein lies another characteristic of the book and the author. It could be seen simply as a book of Social Science because in it, demarcation between Social Science disciplines collapse. If however one is pressured to confine the content of the book within the least number of disciplines, it would be a book on History and Economics; the former perhaps even more dominant. Even he warns that his book may be too historical for economists and too economist for historians.
The most distinctive thread sustained throughout the book is the use of data which spans centuries, but the most comprehensive ones span the last century. This is why such a book could not have been done before now, but in the future more could be done about it. (If you think the works of economists like Kuznet was such, read further to find out why not). Not only were the data analysed but this was done using best practice of Reproducibility in data analysis; which means for all of the claims Piketty makes, one could go to the internet (url given in the book) and find the data used and the generated graphs; here is a link. One could reproduce all the graphs if they have the time. This is taking book writing to another level! It is book writing 2.0 for the internet age; academic and interactive.
However the author is fully aware of the limitations of the data used which is stated in the analysis. Perhaps more interesting for lovers of literature is Piketty’s use of literature especially Jane Austen and Balzac who lived in interesting times as far as distribution of wealth is concerned. These authors were sensitive to the distribution of wealth in their times and well captured in their books. Makes one wants to re-read some Jane Austen with wealth distribution in mind.
Social Science to Social State
Given the focus on social justice and normative expectations from this social sciences, the end game for this Social Science is the Social State at its least unjust implementation. The social state is here to stay! Piketty explores the history leading to the social state following the historical development of taxation in Europe. 19th century taxes were low compared to 20th century and as the taxes increased the social state emerged, taking more and more social responsibilities.
In other words, the growth of the fiscal state over the last century basically reflects the constitution of a social state – Piketty, Capital in the Twenty-First Century
The logic of Piketty’s social state is not simply taking from the rich and giving to the poor, it is a logic of redistribution based on rights. Therefore all, rich and poor, should have what is considered minimum for a decent (honorable) life. Typically attention is focused on education, health and pension. However the threat is wealth inequality. Piketty calls for reformation or updating of the social state, not the dismantling of it.
Looking over the Shoulders of Giants
It would be nice to say Piketty built on the shoulders of giants but it is more appropriate to say he looked over their shoulders; beyond them while locating them within the view. According to Piketty, Social Sciences so far have been built on few established facts (data) and a lot of speculation. If there was a single economics-giant Piketty built on, it would be Kuznet from whom he refined a methodology, however he looked beyond Kuznet in terms of the amount of data that was analysed which resulted in faulting the conclusions of Kuznet. For other giants like (Malthus, Young, Ricardo and Marx), Piketty criticized their methods and so their conclusions. In the 18th Century was Malthus and Young, in the 19th Century was Ricardo and Marx, in the 20th Century was Kuznet (and Sallow to some extent). By relying on history, Piketty positions them within their contexts such that their claims make sense, however inaccurate. Although credit is given to Marx for seeing the need to formulate a systematic approach to analysing economic realities, it seems there was insufficient data to make such monumental claims. Piketty also points out that Marx’s work was life-long academic work (Das Kapital) defending an earlier work in polemics (The Communist Manifesto).
As for Kuznet, his work is used to explain away glaring inequalities resulting from capitalism because it is theorized as simply a phase before inequalities “naturally” reach an equilibrium, even if this requires many more countries to subscribe to a particular type of capitalist economy. On the data used by Kuznet (which was reported as meticulously analysed), Piketty locates it covering the period of the two world wars which must not be ignored, as if wars of that magnitude recur every few years. Concerning Kuznet’s prescription for more countries to subscribe to a version of capitalism, Piketty locates this prescription coming in the midst of the Cold War where communism was the enemy for USA and Kuznet was addressing economists that make policy for USA. By simply analysing data that spans more than the duration covered by Kuznet, Piketty reaches the conclusion that is contrary to Kuznet. Unfortunately many policies have been made in Europe and North American on this flawed conclusion.
Nonetheless, Piketty commends these past giants for the questions they asked; even if they answered them wrongly
To laymen of national economic discourse, it felt the issue of rebasing of Nigerian GDP was the most sensational economic topic since removal of petrol subsidy. The discussions were disappointing (the little I followed) because it was discussed like gossip from tabloid, sparsely academic and deficient philosophically. Arduously, it became clear to those interested that nothing has really changed as far as their daily economic activities were concerned. It was simply updating the parameters of calculation, which placed Nigeria ahead of South Africa. No different from football debates and voyerism, but the implication of Nigeria leading South Africa occupied the minds (and collective egos) of many leading to a burst of sudden patriotism. Is a misplaced patriotism still patriotism?
This is no different from obsession of the world, including Nigerians, with Forbes Magazine’s list of wealthiest individuals. Nigeria’s annointed child is Aliko Dangote, Africa’s richest man, whom I celebrate mostly because he represents diversion from idolising rich criminals to the legally rich. Piketty has something to say about the role played by the likes of Forbes Magazine in perpetrating myths that sustain inequality. The myth is that merit makes one wealthy, and high salaries are justified by productivity of managers; Bill Gates, Steve Jobs and Mark Zuckerberg are the poster childs. Piketty warns against taking Forbes Magazine estimates seriously, but perhaps he is ok with their rankings afterall ranking could be deduced without knowing accurate estimation of wealth. Forbes Magazine’s list is simply a more classy MTV cribs or any of those junk TV that glorifies the rich and thereby inculcating the capitalist myth.
Keeping Eyes on the Price
To pull a wool over someone’s eye is to misdirect a person and let the person enact the endgame so the resulting blame or praise is theirs to bare. That is basically what magic tricks are. However in the case of magic, we are aware that something is not right as habit would predict, which leaves us with childlike wonder. The magician deliberately misleads and the price is wonder, we allow ourselves such amusement. In the case of our society, which is the subject of Social Sciences, misdirection is not necessarily intentional (except by sophist politics) nor do we willingly indulge in it (except one thinks like Freud). We blame academic awareness, or the lack of it, and deficient political will for our misdirection. Eventually we get immersed in the amusement of theories and models, we temporarily forget what we are supposed to be looking for… So when someone like Piketty comes to remind us what and where we ought to be looking at, it is highly welcomed.
Piketty takes some of our attention from regalian questions like “how much profit was made” to questions like “what share of profit goes to income and to capital”. The questions we focus on in concerns of economic, reflects our philosophy of what is just; for instance, whether justice is even worth consideration in profit sharing. Other questions Piketty asks are “how important is capital relative to labor in say national income“, “how does rate of return on capital compare to rate of economic growth in terms of the effect on social inequality“. In other words, Piketty redirects our preoccupation with averages and aggregates of income to question on distribution of income.
Three spheres of focus were carved for investigating income inequality: Inequality in labor income; Inequality in ownership of capital and its resulting income; How inequality in labor income deepens inequality in ownership of capital. The last question in other words is asking why does the rich keep getting richer; or to put it in Nigerian context, why does appointing/electing a person into public office becomes the baptism of the person’s lineage into the social class of the wealthy? A related issue is to do with inheritance.
Equality is the norm, and inequality is acceptable only if based on common utility – Piketty, Capital in the Twenty-First Century
Coming from a religious tradition that has legislated on the formula for sharing inheritance, I find it very important to understand how inheritance may or may not perpetrate social inequality which would lead to social injustice. Piketty identifies inheritance as a major mechanism through which wealth inequality is widened across generations. This information which is not new has not been neglected by some western countries by imposing a tax on inheritance, however they seem to be doing it more as a source of revenue than to restrain inequality. Piketty in several of his proposed solutions (which will be discussed ahead), clearly acknowledges that placing a high tax on the very wealthy is not primarily to generate wealth, instead it is to curb exponentiation of social/income inequality.
The question is not whether inheritance should be abolished or not. Piketty asks instead whether inheritance should be taxed (progressively) or not. I remember more than two years ago I first came across this debate on inheritance but didn’t have the background information to appreciate the claims and prescriptions. To my knowledge, taxes on inheritance either don’t exist or would be so easy to evade in Nigeria given our tax system which is yet to mature; thanks to oil money. It is another question entirely if any Nigerian could be persuaded to pay any tax at all when the government is not accountable. However, I am interested in understanding the role of inheritance in the Nigerian context and if taxing it is the more just thing to do, then how would that be reconciled with religions that have certain prescriptions for it (I see Maqaasid and Istislah saving the day in Islam). I must say though, on the surface, it seems to me inheritance among Nigerians probably reduces inequality because when a wealthy Man has between 5 to 15 children, distributing the wealth is like sharing to a small community; so possible less concentration of wealth compared to Europe. Moreover the Islamic formula allows one to make a will on only one third of wealth; the two third must be shared among family according to a formula which would include extended family.
Class Struggles with Data
We hear that the middle class is this and the middle class is that, as if we know what makes the middleclass. Perhaps because we think we are able to place people in the right class (as lower class, middle class or upper class), we assume we know what the middle class is. The difference between knowing who belongs to middle class and what defines the middle class is a matter of judgement and of analysis respectively. The latter is what concerns our moral inquiry on the justice in inequality. According to Piketty, such classifications are arbitrary and are only important to extract a society’s “implicit and explicit position concerning justice and legitimacy of the amount of income or wealth claimed by a particular group”. Instead Piketty proposes that the useful classifications for discussions on inequality should not be arbitrary but based on something such as centiles and deciles. So that instead of asking “how much wealth does the upper class control”, we ask “how much wealth does the top 10% control”. The occupy wallstreet movement comes to mind, because centiles (and deciles) were their language as their protest was against the top 1%. This classification is also more inclusive in terms of having a strong and well defined base of comrades because in the lower/middle/upper classification, most at the top 20% would have been packed in the same group as those at the top 1% whose realities may be very far apart. Also having this type of classification enables comparison across space and time while grounded in their specific contexts e.g. it is more meaningful for analysis of inequality to compare the how the top 10% differ from the rest in Nigeria and Cameroun than to compare the “upper class” of Nigeria to Cameroun; contries that have different histories and different parameters.
Unfortunately to use centiles and deciles, data on wealth of individuals is required. This is lacking in Nigeria. Another interesting observation is how the middle-class classification and the decile/centile classification reflects the thoughts of Marx and Piketty respectively. Piketty views the shortcoming of Marx as not having adequate data (which was expensive in their time anyway), so Marx formed a system of classification quantitatively arbitrary but made possible due to high inequality. On the other hand, Piketty relies much on data in addition to a system of classification which enables centile and decile classifications in many analysis (Paretto’s type of analysis which is often used polemically and heuristically can now be backed by data in some parts of the world). Class struggle of the future should be based on centiles/deciles.
Claims and Solutions
I hope to summarize Piketty’s claims and the solutions proffered with as little detail as possible. Here are the two major discoveries from the vast data. First, distribution of wealth (and income) is decided by political acceptance of what it just, it is not deterministic based on economic forces. Second, the direction of distribution of wealth is determined by underlying forces of convergence and divergence. Forces of covergence, which close the gap of inequality, include mainly diffusion of knowledge and skills across population especially the least well off. Forces of divergence, which widens the gap of inequality, are higher rate of returns on capital than rate of economic growth in the longrun; which is boosted even further the more central role capital plays in an economy. Current trend is that forces of divergence are more potent given the current configuration of most capitalist societies.
The basic solution would be to sustain forces of convergence and constrain forces of divergence, justly. For the latter, the recommendation is to levy a progressive tax on Capital (not simply on income), which should be done globally as it would be a joke otherwise given globalization and tax havens. Progressive tax means those with most wealth are taxed higher percentages. A requirement for this would be more accurate data on ownership in countries, which would then be shared among countries. This would not replace progressive income tax but compliment it. Result of the historical analysis demands a new solution to the monstrosity of capitalism because even instruments like progressive income tax and pension systems, which are creations in particular historical contexts and capitalism, have become more complicated since then.
Faithful to his aversion to Economics-as-Science, and understanding the importance of politics to economic norms, Piketty only offers these solutions as a starting point so that ultimately democratic debates shall decide. But he has provided the criticisms, the data, the analysis and possible solutions.
If we are to regain control of capitalism, we must bet everything on democracy – Piketty, Capital in the Twenty-First Century
After the cancerous insecurity in Nigeria, I think the issue of inequality raised by Piketty comes next, parallel to lack of industries and bad education system. That it because in setting up industries and education systems, long term inequality that may be perpetrated by the system should be considered. Piketty is willing allow debates and responses to enrich his proposed solutions, and perhaps make it even suitable to economies of the third world. If not 2015 (presidential election), then maybe 2019, we need a Piketty for Nigeria!