A property crisis: interview with Thomas Piketty

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by Zan Boag on August 24, 2015

“Over a certain wealth level, particularly if you are Bill Gates, if you have several dozen billion dollars, you know it’s not very useful for society if you keep it forever. So you should return part of it each year. In a way, it’s like permanent land reform. It’s like a permanent revolution, but it’s a quiet revolution because it takes place within the rule of law.” Thomas Piketty, from an interview by Zan Boag for New Philosopher magazine’s ‘property’ edition. The full interview is below.

Zan Boag: You write in Capital that inherited wealth is the key to inequality, that it is almost as decisive a factor as it was 100 years ago. Those from younger generations who are unable to buy a home often lament that things are in fact even more difficult for them. Is this really the case?
Thomas Piketty: I would agree that, increasingly, access to property for the younger generations is more difficult, in particular because of real estate values. Without inherited wealth it is very difficult for younger generations to access property, simply because they only have their labour income. If you only have your labour income and you want to become an owner in a large capital city like Paris, London or New York – today that is much more difficult than 30 or 40 years ago. If you’re going to use your labour income, it has to be a very high labour income; whereas if you have family wealth it’s much easier. So the relative importance of inherited wealth and labour income in access to property is very different for this generation than it was for the post-war generation.

Mortgage payments as a percentage of household income have been rising steadily over the past 25 years in the US and Australia. All this is happening in a time of record low interest rates. What is causing this rise, and what needs to be done to reverse the trend?
Well, it’s really a mixture of policies. In the case of the US, the rising inequality in access to property is the consequence of several things, some of which have to do with rising inequality in labour income, in access to high-paying jobs. The inequality in wages in the US today is much higher than it was a couple of decades ago. The most extreme way to put it is if you take the real value – the real purchasing power of the Federal minimum wage today – it is below the level in the 1960s, which was half a century ago. Of course, average income and total income have increased enormously over this time, so it’s quite unusual to have a country that has, over the course of half a century, an absolute decline in the purchasing value of the lowest wages and labour incomes. This itself is a consequence of many other processes – it has to do with labour market rules and institutions, including the Federal minimum wage and the decline of labour unions. Some of it has to do with inequality in access to education and training, and at the end of the process this has an impact on inequality in access to a large number of fundamental goods and rights – including housing. Some of the evolution has also been exacerbated by the changing tax system, and the decline in tax progressivity – changes in the tax system that have been broadly in favour of top income groups as compared to bottom income groups.

You point to the diffusion of knowledge and skill as the main force in favour of greater equality – what type of knowledge are you referring to, and how is it to be diffused?
The simple form of diffusion of knowledge is access to education. There’s a striking statistic that I quote in my book, which is that the average parental income of undergraduate students corresponds to the average income of the top two per cent of US family incomes. So, of course, you have students who come from below the top two per cent, but what this statistic indicates is that people who come from below the top two per cent are so few, and those who come from the top two per cent tend to be so high within that group that the overall average makes it appear as if all students have parents earning the top two per cent of income in the US. What this illustrates is that inequality in access to education has become absolutely enormous in the US. And this is really an area in which the gap between the official meritocratic discourse about equal opportunity and the reality is particularly enormous. In every country I think there is a tendency for the elite to claim that inequalities are fair, that we have equal opportunities, that it is meritocratic, but here you have an example where the gap between the official claims by the elite and what is really going on is particularly striking.

Is property the key to inequality?
Well, property has taken different forms historically – there are different ways to organise property. There are some ways to organise property that are really inegalitarian: when you have all the power with shareholders, when you have all power with landowners. Yes, this is one of the important sources of inequality and one of the ways to perpetuate inequality. But it has been a very long historical process to try to make property relations more democratic. This has taken on many different forms – public property sometimes plays a role for certain public services or trust structures, but also within the realm of private property you can put limits on the power of landowners to get rid of tenants, or shareholders to get rid of workers. Making property relations more democratic involves organising property relations through the political system, through the tax system, through public property – it’s a multi-dimensional process through which we attempt to organise property relations, and this will continue. This is just the beginning. I don’t think we have invented all the ways to organise and regulate property yet.


You write that 50 per cent of people own less than five per cent of the wealth, and the top ten per cent have owned 60-90 per cent of the wealth “in all known societies”. If it has always been this way, why should those who benefit from the current situation change it?
I think it has not always been like that. Back in the 1970s-1980s access to education was a bit more egalitarian, including in the US. This has been changing over time. The US – many decades ago – used to be more egalitarian than Europe, and now the US is a lot more inegalitarian than Europe. So these things change over time – we should not view policies and institutions and attitudes as given forever. The main reason for studying the history of inequality is that we can learn from history that there are always alternatives, there are always different policies and institutions, that it’s not deterministic. So in the particular case of the US, this policy period that we’re in right now is the product of a particular history and trajectory, and this can change in the future.

If we were to create a more equal society, how would we go about it? What steps need to be taken, and why is it important to take these steps?
I think it’s important just to be in accordance with our values. What’s interesting about inequality is that nobody at the top claims “OK, I am rich, this is bad, it’s bad for the poor.” People have a more sophisticated view, including the winners at the very top who will say, “Yes, I am rich, there is a lot of inequality, but this is in the interest of the poor.” Sometimes there are a lot of bad looks with that kind of claim, but it’s interesting that in modern democracies people have to behave as if there are common values, as if inequalities must be in the common interest. The question is: Is it in the common interest or not? I think by and large it’s just a difficult problem. My claim is not that I know for sure what would be the right policy, my claim is that by looking beyond our own national experience, by looking at the experience of other countries and other historical periods, we can all learn and get a better sense of which policies are in accordance with our basic values. This may be seen as an idealistic view of politics, and of course sometimes people are just trying to defend their interests, but I think politics is more than this and things can change more quickly than some people seem to believe.

You mention in Capital that certain private interests would like to own property in “the atmosphere, the sea, mountains and knowledge”. Is this where we’re heading: to the privatisation of all spaces, even of knowledge?
Not necessarily. I am not so pessimistic about the future. I think we will invent new forms of property arrangement in the future. Of course, people who own a lot of property want to extend their rights to control and domination, but whether they prevail is another issue. I think, generally speaking, in my book what I conclude about property arrangements is that we need private property, but we also need public property. When you accumulate – as is the case in some countries – public debt that is higher than all public assets, I think this is bad. It limits the ability of the government to make investments in infrastructure, to avoid the decline in natural capital and resources. So we need public capital along with private capital, and we also need intermediate forms of property relations. This can be non-profit organisations or foundations, but this can also be more innovative forms of property arrangements such as crowdfunding, more participatory democracy and government. The big debate about property is not over. The communist attempt to end private property in the 20th century was a major historical failure, but that does not mean that we should stop thinking about property. The view in the media, in education, and in culture that the shareholder company is the only way to organise human activity, property and power relations, is just wrong. It’s incredibly naïve. You know, some want to try to convert our university into a stockmarket company. Well, some people have tried to do that in the university sector and it has been a catastrophe. There isn’t one solution for all sectors, but certainly there are different ways to organise property relations and the distribution of power and control rights that come with property. I think it’s important to stress that these different ways of organising property, these kinds of policy changes, are complementary to policies in the area of taxation – the progressive taxation of property. Sometimes people oppose these two different ways to regulate inequality, taking either a systems approach with property rights, or a tax system approach with redistribution, but I think they are both complementary because you need transparency. What’s good about progressive taxation of property and wealth is that it comes with a lot of transparency about who owns what, and that’s important in most democratic organisation of property. If you want more worker involvement in company boards, a more democratic distribution of power in firms, you need to have access to more transparent information about who owns what – transparency with the accounts of the company.

What about taxation on inherited wealth? You’ve pinpointed that a large factor behind inequality is due to inherited wealth.
This is one of the ways to limit the perpetuation of property inequality and property across the same family. So that’s certainly one of the important policies to introduce.

When looking to 2050, to 2100, you mention that “it would be absurd not to raise the question of who will own what and simply to assume from the outset that growth is naturally balanced in the long run.” So I ask you this question: who is likely to own what in 2050?
Well, I think nobody knows. There are powerful forces going in different directions. What I know for sure is that there is no reason to believe that natural market forces can keep distribution in reasonable proportions, whatever that is. I really think we need strong democratic institutions, and strong transparency about income and wealth, in order to keep things under control. We will need to adapt our policies to whatever we observe. If inequality is stabilising at the levels that are acceptable, then we won’t need a progressive tax policy – and I would be very happy – but I think we need a plan B in case this doesn’t happen naturally. But what I have learned from history is that there is no reason to expect that it will happen naturally, because there are powerful forces pulling in every direction. In particular, there are powerful forces that tend to push a very high concentration of wealth and property rights, and the perpetuation of inequality over time. So we need to be careful – we need to have policies that we put in place so that market forces and private property institutions become the slaves of the common interest – of democracy – instead of democracy being the slave of these powerful market forces and private property institutions.

Proudhon said: “Property is theft”. Rousseau claimed that we would have been saved innumerable horrors had we rejected the notion of private property. What do you have to say about ‘property’?
Well, I think this quote by Proudhon is really too simplistic. It’s easy to criticise private property, but it’s more difficult to see what you are going to replace it with. So, I think there are alternatives to private property, there are different ways to organise private property, but we have to look harder. What I am interested in is what we’re going to do afterwards. It’s not enough to say, “end private property and mankind is going to be free”. We know after the 20th century that it’s not enough to abolish private property to free mankind. I think property relations are always very delicate relations because they’re about power, about control, so you have to be very delicate in the way you transform private property by giving more rights to workers in companies, by giving more rights to tenants. It’s a delicate arrangement to organise property relations in a way that’s more democratic, in a way that facilitates human communication and human activity.

What is the key message in Capital in the 21st Century when considering property and inequality?
The key message is that we need to think hard about property. We need private property, but we also need public property, and we need intermediate forms of property. The idea behind the progressive tax is that property rights should not be permanent. The idea of progressive tax on wealth is that over a certain level, property rights should in effect be temporary. If you have very high wealth, then you would have a tax rate of two per cent, five per cent, ten per cent per year – depending on what kind of progressivity you want. This means that each year you have to return to society two per cent or five per cent or ten per cent of your property. Over a certain wealth level, particularly if you are someone like Bill Gates – if you have several dozen billion dollars – you know it’s not very useful for society if you keep it forever. So you should return part of it each year. In a way, it’s like permanent land reform. It’s like a permanent revolution, but it’s a quiet revolution because it takes place within the rule of law.

This article is from the ‘property’ edition of New Philosopher magazine. You can support New Philosopher by subscribing to the print edition of the magazine here.

Thomas Piketty is a French economist who investigates wealth and income inequality, and the author of the bestseller Capital in the 21st Century. He is a professor at the Paris School of Economics and Centennial professor at the London School of Economics. In early 2015 he rejected France’s highest honour, the Legion D’Honneur, saying “I do not think it is the government’s role to decide who is honourable.”

Photo: Janerik Henriksson

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