Thomas Piketty has been hailed as the next big economist. There is no major media source that has not published some piece on his views. His work is proof that we need to tax the 1%–the insanely rich who hoard wealth and do not redistribute it–and he has been lauded by progressive economists like Paul Krugman as succinct arguments against free market conservatives. A major victory for the left, then.
However, while it may be a major victory for liberal leftists, anyone who is worried about rising food prices, the onset of climate chaos, and growing environmental pollution in most of the world should take pause. Piketty is not our Adam Smith, not our Karl Marx. In fact, despite writing a book with the grandiose title Capital in the twenty-first century, he belongs firmly in the 20th century, along with neo-classical, welfare, and neo-liberal economists. If we wish to work toward a more just economic system able to respond to the current environmental crisis, we need to go beyond these antiquated theories.
Of course, Piketty does consider ecological collapse as a possibility and a consequence of capitalism. Like Marx, he acknowledges the connection between the two, suggesting that economic growth requires environmental degradation. But when we dig deeper, his suggestions to fix the problems of capitalism lack any coherent response to the role that capitalism has played in over-extraction of the world’s resources.
To illustrate: in an interview with the Globe and Mail, Piketty was asked if he thought we need an anti-capitalist solution: doing away with capitalism and opting for a new economy. His response:
Oh, that would be a very bad solution. Private property and the market system are good not only to promote innovation and to promote growth; private property and the market system are good for our personal freedom. Private property goes together with the possibility to move to a different place. Every command economy in the world in history not only was a disaster in terms of economic growth, but was also a disaster for personal freedom – because if you do away with private property, usually you end up with an internal passport system where you decide where people should live and where they should not live.
Nobody should ever think of that. I belong to the post-Marxist generation, if you wish – I turned 18 in 1989, with the fall of the Berlin Wall; I travelled to Eastern Europe to see those countries after the fall of their communist dictatorships, and I’ve never had any temptation for that. Anti-capitalists should read the history books.
I want to keep private property and the market system. But I want to make private property and the market system the slave of democracy, rather than democracy the slave of private property and extreme inequality.
Piketty may well be right that private property rights enable social mobility, allowing people to move from the global south to the north. People with money, that is. In a world where the money you have is what determines whether you can move or stay, those who happen to be born in a rich country or to rich parents are going to be better off. Taxing the richest isn’t going to solve this–only a new economic system that doesn’t put as high a value on money can do that. And this is where Piketty seems a bit behind the times: his understanding of economy really sticks to monetary wealth and ownership of land as the only value that can bring about equality. To understand what is wrong with this, let’s review some of the most important contributions to economics of our century.
First, as Herman Daly pointed out once again last week, monetary wealth cannot be regarded as the only measure of wealth. Measuring only growth fails to take into account how this growth often leads to costs elsewhere, costs that can’t be measured with money. For example, one corporation recently argued that oil spills can actually be good for the economy. In ecological economics, this is called an externality: a social or environmental cost that is not paid by the people who cause it. Climate change is an externality because the people who will have to pay the most for rising sea levels–say, people living in Bangladesh–are not the people who caused it. The fact that Piketty’s grand new economic solutions do not take into account the externalized costs of capitalist growth should raise a little red flag for anyone who wants a new economic theory more appropriate for the current world of environmental collapse.
Another red flag is that Piketty defends private property as the universal guarantor of personal freedom. In doing this, it’s like he doesn’t know about some incredibly important research showing just the opposite. Elinor Ostrom‘s theories of institutional economics are a direct counter-argument to the idea that only private property can manage and equally distribute resources. Citing example after example, Ostrom shows how there are many other possible institutions that might be better suited for managing our earth’s scarce resources and distributing wealth in a just manner. This of course doesn’t rule out the potential benefits of a market or some kind of private property, but it does lead the way for an economic system very different from capitalism. The fact that Piketty isn’t aware of this new form of economic analysis shows that he is, once again, behind the times.
A major problem with Piketty is that he fails to fully examine the role of colonialism in creating inequality. Marx himself was quite aware that the growth of capital was linked to colonialism. To describe this process, he coined a term, “primitive accumulation”, meaning that the growth of capital originally depended on the privatization of land, extraction resources, and the creation of new labour markets by driving peasants and indigenous people from the countryside and forcing them to work for wages. Marx showed how capitalism was the driving factor behind the privatization of the English countryside, the slave trade, and the colonization of the New World. Piketty, for his part, also equates land, labour, and money with ‘capital’ or ‘wealth’ (patrimonie, in French), but does not really make any connections between the rise of colonialism and the build-up of that wealth, he only documents the role that the First and Second World War had in redistributing the wealth inherited from rampant colonialist capitalism.
This leads to the most important drawback to Piketty’s work–his failure to understand that the flow of capital in capitalism is by definition one-sided and relies on imperialism. As was most succinctly explained by Immanuel Wallerstein, capitalist growth is only possible when one area imports more raw resources than they export. A city (say, London), a country (the United Kingdom), or a continent (Europe) all base their wealth off of enormous extraction of resources from the world they colonize. This relies on institutions of violence and control, protecting the empire and oppressing the conquered.
This relationship between extraction and wealth was what caused the current distinction between “developed” and “underdeveloped” world. Piketty, in his data, relies on an antiquated form of economic theory that calculates wealth only in terms of capital assets, and, in doing so, he assumes that it is possible to redistribute this wealth simply by taxing the rich. His data can only measure the wealth of developed nations, assuming that re-instituting welfare-era taxation would somehow solve the primary contradiction of capitalism: it depends on the exploitation of the third world. No amount of redistribution will fix this dependence. Trying to solve inequality through welfare and growth is like thinking a car will be more efficient if it were to use more oil. Economic growth requires exploitation and environmental degradation, and no amount of redistribution is going to solve this.
It is therefore no surprise that commentators like Matthew Yglesias can call for an increase in economic growth alongside an international robin hood tax. To Yglesias and Piketty, who are blind to the inherently uneven character of capitalism, growth and welfare aren’t mutually exclusive; they rely on each other. But anyone that wants to deal with the current food, environmental, and financial crises head-on will need to embrace the fact that it is relentless growth that is also the cause of these crises. For this reason, Piketty’s economics cannot possibly respond to capitalism’s problems.
This point is seen more clearly when we notice that Piketty’s solutions seem to rely only on the power of the state. In doing this, Piketty totally glosses over the role that nations have in creating unequal wealth in the first place. This was most accurately shown by Karl Polanyi in his book The Great Transformation, published a year before the end of the Second World War, where he argued that, in every case, the state actually manages inequality, and is the violent arm of the market. Polanyi wrote this work as a direct response to both von Hayek (who published the Road to Serfdom that same year) Keynes (who had published The General Theory of Employment, Interest and Money at the start of the Second World War). On the one hand, Polanyi refuted von Hayek, showing how the state has always been responsible for the growth in markets, they are inseparable. On the other hand, he refuted Keynes, showing how even a welfare state relies on social injustice, environmental destruction, and uneven relationships between rich and poor nations. What’s more, we should consider how the welfare state actually has excluded people again and again, and has always been intrinsically unequal and racist.
Lastly, but not unimportantly, Piketty might do well to mention alternative forms of measuring wealth. A very promising avenue of research is that of multi-criteria evaluation. Here, economists and ecologists have been developing ways to measure what something is worth: say, a forest, an ecosystem, a beautiful building. In the framework of (neo)classical economics, a forest is only worth how much money we might be able to make from it. So if it’s more profitable to cut it down, we should. But what if the forest has huge cultural worth to a local population, or supports people’s livelihood through forestry, hunting, and gathering? What if the forest supports a wide diversity of wildlife, and helps stop an encroaching desert? Here, ecological economists say we shouldn’t measure the worth of the forest in terms of money, but rank monetary profit amongst many different values, as determined by everyone who has a stake in its future: the corporation willing to cut it down, to local community, the state. This is called the incommensurability of values–meaning simply that different values are like apples and oranges, we can’t always convert them to money–and it’s only of the few innovations that ecological economics has come up in working toward a new economic theory that could potentially respond to today’s crises.
The lesson to take away from this is that Piketty is wrong to assume wealth only takes the form of land or money. Human beings make decisions that aren’t just based on profitable self-interest: they choose for their community, they choose for their sports team, they choose for their local recipes. This requires taking into account many criteria to make any decision. Following ecological economists, we should expand our idea of wealth beyond capital assets and take into account the value of nature and relationships.
The sum of this all is that, if we want an end to continuing dispossession, pollution of land and water, and state-imposed racism and inequality, we should not hail Piketty as our next major economist. The answers lie elsewhere and have already been, to a large extent, explored. While Piketty is being hailed as the next de Tocqueville, the next Marx, the next von Hayek, he belongs firmly in the 20th century–with Friedman and Keynes. This is because his view of economics and its future still fails to take into account the role of environment and the institutions that manage them, and uneven power relationships in driving human wealth. It also does not challenge the role of the welfare state in driving uneven development.
Take it then, for what it’s worth: an astounding collection of data documenting the flow of capital (land, labour, money), its concentration in the 20th century, and a projection of how it will be concentrated in the 21st. A narrow window on the human economy with incredibly narrow tools to measure it. But an economic theory of the 21st century should not just measure the flow of capital in rich countries; it should chart its relationship to material extraction and unjust property rights. It should provide alternative forms of measuring wealth. His work is valuable for those who think that we just need to redistribute wealth in developed countries–socialism for the rich, really–but for anyone who wants a truly progressive economic theory that has a chance in the 21st century of extreme environmental and social crisis, they’ll need to look elsewhere.
We want more, so we should set our targets higher.