In the past decade, economic inequality has moved from a position of relative marginality to the center of attention for academics, policy professionals, and even major institutions such as the OECD, IMF, and the World Economic Forum at Davos that were an earlier bastion of economic orthodoxy. This transformation has shifted the focus from poverty to economic inequality in many forums, and from looking at social problems at the bottom of income distribution to also looking at the problematic effects of wealth concentration at the top.
The French economist Thomas Piketty is a central figure at the heart of this transformation. His work is a lens through which to look at the strengths and weaknesses of the emerging paradigm of inequality economics.
Piketty’s research on inequality is based on an analysis of historical data on income and wealth distribution in advanced economies, including the United States, France, and the United Kingdom. His central argument put forward primarily in his 2013 book Capital in the 21st Century, is that in capitalist economies the rate of return on capital is typically higher than the rate of economic growth. This means that over time those who own capital (such as property or stocks) will accumulate more wealth than those who rely on wages or salaries for their income. This dynamic has played out over the last few decades, resulting in a significant increase in income and wealth inequality. For example, in the United States, the top 10% of earners saw their share of national income rise from around 30% in the 1970s to over 50% in recent years. Piketty argues that this trend is unsustainable and poses a threat to social and economic stability in the long term.
Piketty’s work has significant implications for economic policy and the way we think about economic development. It challenges the traditional view that economic growth is the key driver of prosperity and social progress. Piketty argues that economic growth alone is not sufficient to reduce inequality and that policymakers need to focus on measures that promote a more equitable distribution of income and wealth. Piketty’s research also highlights the importance of progressive taxation and redistribution in reducing inequality. He argues that without these measures, the concentration of wealth will continue to increase, leading to social unrest and political instability.
In more recent work, notably Capital and Ideology from 2019, Piketty and his research team broaden the historical and geographic scope of our understanding of inequality by focusing on the profound impact of colonialism on the development of inequality. European colonies of the 18th and 19th centuries were among the most unequal societies in the historical record. The slave colonies such as French St Domingue (current day Haiti) and the southern states of the US stand out with extreme levels of inequality in income and wealth. The figure below provides an estimate of the comparative levels of income distribution in France compared to the colonial possessions of Algeria and Haiti in different historical periods.
While Thomas Piketty’s work provides great empirical advances and has greatly widened the spatial and temporal scope of the discussion of economic inequality, his work also points towards some of the limits of the emerging field of inequality economics. When it comes to addressing inequality, his main proposals relate to the use of progressive taxation of wealth and income to redistribute resources from the top to the bottom of the income distribution. However, this points to the issue of power, especially state power. The role and the character of the state are not theorized systematically in Piketty’s work, and the ability of the state to redistribute a large part of national income, especially in the face of opposition from powerful economic forces, does not emerge as a problem.
The issues of state power are exacerbated when it comes to the international level. Problems of international coordination around issues of taxation and spending are massive. There are massive barriers to a proposal of a global wealth tax, which forms a central part of Piketty’s proposal for addressing inequality. This is a dilemma that has been explored extensively in the field of international relations, and further cross-disciplinary dialogue with neighboring disciplines would greatly strengthen the emerging field of inequality economics.
These questions and others are discussed further in my recent Danish language book Introduction til Piketty – ulighed, retfærdighed og demokrati. The book is aimed at teaching at BA and master level, as well as a general audience with an interest in the dynamics of economic inequality.
Rune Møller Stahl is an Assistant Professor in Political Economy at Copenhagen Business School. His research is situated in the field of international political economy with a special focus on the history of economic ideas.