Saturday, July 12, 2014

The Evolution of Inequality

When French economist Thomas Piketty came to the United States this spring for a book tour, he was treated as an intellectual celebrity.  At some events, he was introduced as "the new Tocqueville."  His book--Capital in the Twenty-First Century--has become a  bestseller.  It's reported that it has been selling faster than any book in the entire history of Harvard University Press.

As the title of the book suggests, Piketty presents himself as the Marx of the 21st century.  Although he is not an orthodox Marxist, he does look like a Marxist revisionist.  He agrees with Marx that capitalism tends to produce an unjust inequality in which a capitalist oligarchy claims an unfair share of income without working, but his solution to this problem differs from Marx's. 

Piketty's descriptive argument is that the shocks of two world wars and the Great Depression reduced the gap between the rich and the poor in Europe and North America from 1920 to 1970, but that since 1970, the gap has widened so that by the middle of the 21st century inequality will be back up to the pre-World War I levels--with the top 10% of people owning 90% of all the wealth and 45% of all the yearly income.  This is what he calls "patrimonial capitalism."

His prescriptive argument is that to avoid such unfair inequality and the social instability that it would likely provoke, we need to enact three policies.  First, we need to expand the social welfare state.  Second, we need to have a sharply progressive income tax with marginal tax rates for the wealthiest people at 80% or above.  Third, we need a progressive global tax on capital with marginal tax rates of 2-4% for the wealthiest people, combined with international financial reporting so that people cannot hide their wealth.  He presents this as a "useful utopia"--a utopia because he does not expect this to be enacted anytime soon, but useful because it sets a reasonable standard to which we can look as we engage in democratic deliberation about the problem of inequality.  This is a radical form of the capitalist welfare state or the Nordic model of social democracy, and thus he is in the Marxist revisionist and social democratic tradition of Eduard Bernstein.

Although I disagree with him on many points, I have found his book to be one of the most illuminating and provocative books that I have read in the past ten years.  It is a stunning moral and political history of inequality over the past 250 years and a projection of the possible future courses of inequality.

This is the first of a series of posts on Piketty and inequality.  Before turning to Piketty's arguments, I want to here reflect on how his history fits into the entire evolutionary history of inequality from the Stone Age to the present.  For this purpose, there is a convenient collection of a dozen articles on "The Science of Inequality" in Science (May 23, 2014).  This includes an article by Piketty that concisely summarizes his descriptive argument in six pages, which is a helpful introduction to his 700 page book.

In the evolution of inequality, I see five stages: simple foraging societies, complex foraging societies, agrarian states, capitalist liberal states, and capitalist welfare states.

Simple foragers--nomadic hunter-gatherers--are often identified as living in an "egalitarian Eden" (Pennisi 2014), where no one has more property, power, or status than others, and thus the history of inequality begins with the departure from that state of pure equality.  For those who yearn for such equality--those like Rousseau and Marx--the great aim is to organize a society that approximates in some manner this original egalitarian condition in which no one could dominate over anyone else.

Although it is true that simple foraging societies are more egalitarian than any other other human society, foragers are not completely equal, because individuals are naturally different, and some individuals are naturally inclined to assert some superiority over others.  Some are more skillful hunters, or better at mediating disputes, or better at managing shamanistic ceremonies than others.  There is leadership in such societies.  But such leadership is informal and episodic.  And to preserve their individual autonomy, foragers punish those who assert too much dominance over others (Kelly 1995, 293-97; Johnson and Earle 2000, 32-33, 57-58; Boehm 1999).

In complex foraging societies, we can see "the ancient roots of the 1%" (Pringle 2014).  Although inequality is often said to have originated with farming (as Rousseau claimed), foraging societies that had access to concentrated patches of wild foods (such as rivers with abundant fish and plentiful areas of wild cereals) could accumulate surpluses that could come under private ownership.  A few ambitious and aggressive people could use their ownership of such property to support their status and power over others, which could evolve into chiefdoms (Kelly 1995, 302-31; Hayden 2011).

In agrarian societies, the surplus of food produced by farming and herding allows for a settled existence and a greater specialization of labor, in which there can be specialized classes of people in a hierarchical structure--traders, soldiers, bureaucrats, lords, priests, and kings--who live off the productive labor of the peasants.

By the end of the 18th century, the feudal order of European agrarian societies was being overthrown by a bourgeois revolution that led to capitalist liberal states--as in the American and French Revolutions.  The inherited privileges of lords, priests, and kings were set aside in favor of the bourgeois principles of equal rights to life, liberty, and the pursuit of happiness.  But as Piketty shows very well, equal access to free markets and free competition did not produce economic equality.  In France, for example, economic inequality increased steadily in the 19th century, so that by 1910, the top 1% of the people held 60% of the total wealth in France, and the top 10% held 90%, which is probably close to the inequality of private wealth on the eve of the Revolution in 1789.

The reason why capitalist liberalism could not reduce inequality, Piketty argues, is because of the central contradiction of capitalism, which he expresses as r > g.    The private rate of return on capital (r) tends to be higher for long periods of time than the rate of economic growth (g).  As a consequence, wealth accumulated from the past grows more rapidly than output and wages; and the entrepreneur inevitably becomes a rentier, living off his return on capital without having to work, which allows him to become ever more dominant over those who own nothing but their labor.

A clear reduction in inequality did not come until the emergence after World War I of the capitalist welfare state based on social welfare programs and high progressive income and estate taxes.  So, for example, in the Scandinavian countries in the 1970s and 1980s, the top 1% owned 20% of the capital wealth, and the top 10% owned 50%.  In Piketty's ideal society, this inequality would be reduced even more, so that the top 1% would own no more than 10% of the wealth, and the top 10% would own no more than 30% of the wealth.

But notice that in this entire history, even including Piketty's ideal society in the future, absolute equality is never attained.  A Marxist communist revolution would try to achieve something close to absolute equality by abolishing private property and free markets.  But Piketty thinks that can't work--as indicated by the failure of Soviet central planning--and so he wants to combine capitalist private property and markets with a system of social welfare and redistributive taxation that reduces but does not abolish inequality.

Does Piketty thus concede, at least implicitly, that evolved human nature makes absolute equality impossible?

To be continued . . .


Christopher Boehm, Hierarchy in the Forest: The Evolution of Egalitarian Behavior (Cambridge: Harvard University Press, 1999).

Robert L. Kelly,The Foraging Spectrum: Diversity in Hunter-Gatherer Lifeways (Washington, DC: Smithsonian Institution Press, 1995).

Brian Hayden, "Big Man, Big Heart?  The Political Role of Aggrandizers in Egalitarian and Transegalitarian Societies," in D. R. Forsyth and C. L. Hoyt, eds., For the Greater Good of All: Perspectives on Individualism, Society, and Leadership (New York: Palgrave Macmillan, 2011), 101-118.

Allen W. Johnson and Timothy Earle, The Evolution of Human Societies: From Foraging Group to Agrarian State (Stanford, CA: Stanford University Press, 2000).

Articles in Science, 344 (May 23, 2014):

Elizabeth Pennisi, "Our Egalitarian Eden," 824-25.

Thomas Piketty and Emmanuel Saez, "Inequality in the Long Run," 838-50.

Heather Pringle, "The Ancient Roots of the 1%," 822-25.

I have written about the ancient evolution of inequality in a previous post, which includes links to other pertinent posts.

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