Capital against growth: revisiting Piketty, ten years after the crash

“We’re ready!” From the US Office of War Information, Bureau of Special Services, 1944.
Ten years on from the financial crash of 2008, Piketty’s Capital stands as the most comprehensive picture every drawn of contemporary inequality. Its fame is closely linked with the post-crash political landscape in which it was published. But if Piketty’s work is to have any lasting significance, it needs to do more than prompt us to reflect on inequality. With the start of the second post-crash decade, we need to recognise that Piketty leads us to fundamental, dire conclusions about the long-term viability of capitalist production.

I.

We all remember Thomas Piketty and his much-discussed, little-read monolith of economic history, Capital in the 21st Century. In 2014, Piketty’s work became emblematic of a political moment in which wealth and income inequality were suddenly thrust into the centre of global attention. Affluent societies became captivated by Piketty’s deep dive into the ocean of statistical data relating to taxation, income, and economic development from the pre-dawn era of capitalist production through to today. Piketty’s Capital dominated journalism, topped best-seller lists, and helped draw the outlines of a new age of debate about what role inequality ought to play in society, if any. Nobel Prize-winning economist Paul Krugman sang Piketty’s praises in his New York Times column week after week. Capital dropped at precisely the right historical moment, six years on from the 2008 financial crisis but still just at the beginning of our age of anxiety. Since the financial crash, wealth inequality has only gotten worse — so much worse than the world’s richest 1% now have, famously, more wealth than the rest of the world’s population combined.

At the time, Piketty’s work seemed to be history in the making. What made his work so remarkable was the empirical rigour with which it demonstrated what had for many only been felt. He offerred compelling proof that modern societies really had become as staggeringly unequal as it seemed. He also showed what dire political consequences might follow from further inaction on rising inequality(political outcomes since 2014 seemed to have confirmed this). Such clarity seemed like it could be a powerful weapon in the right hands. What Piketty’s Capital apparently promised was a thrilling new opportunity to tackle the challenge of inequality which he had cast in such compelling terms.

But, as Marx once reminded Proudhon, “history moves by the bad side”. In the years since 2014, we have obviously not seen anything approaching a serious, critical political response to the profound crisis posed by increasing inequality. This is despite all the movements that have come and gone with the aim of amounting to such a response. We have in fact seen the opposite. Notwithstanding the ground that socialism has gained in the often-vague estimation of public opinion polling, actual electoral outcomes have since 2016 have only served to empower political agendas that wilfully disregard the real economic, social and ecological needs of an overburdened world.

In this climate, the arguments made by Piketty in the hope of persuading policymakers have fallen flat. This has been true of subtlest claims as well as his most explicit. The party Piketty himself once advised in France — that of former President Francois Hollande — was dumped from power in disgrace in 2017. Podemos, the centre-left socialist party he advised in Spain, has fared little better. And it is obvious that right-wing nativist politics, which everywhere threaten to fill the void left by the collapse of liberal hegemony, simply pay no regard to inequality at all. The Trumpian worldview simply attempts to live with inequality by forcing the most marginalised groups in society to bear both the blame for worsening economic conditions as well as the brunt of their effects.

What is the place, then, for a Stakhanovite exercise in economic data-mining like Piketty’s? The real question is not of why Piketty’s voice failed to be heard by the powerful. Even at the time of its publication, many reviewers of Capital understood that the really interesting conversations sparked by it would be about what role Piketty’s work might play in socialist political praxis. And it is this area — the domain of concrete political struggle — where many of Piketty’s left critics found grounds to take issue with him. His data-heavy, human-sparse analysis of capitalism seemed to leave little room for the historical agency of people involved in movements for change. The left’s ambivalence towards Piketty formed part of the diminishment of excitement that allowed his work to be swept aside by new events.

But treating Piketty’s Capital as if it ought to have behaved anything like Marx’s Capital is a sign of how starved the mainstream political discourse is(or was) for a common-sense understanding that inequality does in fact exist. The rich simply have gained stupendously at the expense of the rest, especially since the 1970s. This makes a change from the pre-2008 political culture, which had for years been subjected to a relentless — even where unconscious and unconceived — campaign to de-legitimise any worldview which claimed that capitalism possesses dynamics which tend to increase, rather than decrease, inequality. Such an insistent disregard for lived reality is the ideological rock on which liberalism is built. Piketty did us an unquestionable service by showing in(excruciating) detail how this fairy tale view of capital accumulation is false, and worse than naïve.

The most important takeaway from Piketty’s Capital is not simply that inequality is real or that it has become increasingly secere. If socialists learn anything from his work, it should be that inequality under capitalism is a structural inevitability. Its rising intensity is baked into the long-term development of the market economy, and this dooms capitalist relations in the long run.

Many have contested Piketty’s proofs or found ways to diminish their significance. For instance, an unsympathetic reviewer in the Financial Times briefly enjoyed being at the centre of an intense op-ed controversy by calling into question the accuracy and deployment of Piketty’s data. This attack, however, largely fizzled out after it was subjected to its own withering takedown. It has since become the consensus that the picture Capital in the 21st Century paints is a broadly accurate one. Since the FT fiasco, to make Piketty go away, the more effective tactic has been to ignore him. Piketty’s book gathers dust, his policy ideas have not been implemented, and political discourse has moved on.

For its part, the socialist movement has found little cause to mourn the passing of Piketty’s Capital as an object of intense discursive interest. Its technical reliance on neoclassical models of economic analysis put it too close to the camp of outright reaction for many, such as David Harvey. In more philosophical terms, Piketty’s argument that the tendency towards inequality sabotages liberal capitalism’s fateful promise of “meritocracy” has been seen as a hopeless validation of liberal orthodoxy. Such orthodoxy would have us believe that capitalism may not promise a perfect ratio of reward to effort today, but that its true and meritocratic form existed some time in the past. It could therefore, with a bit of fine-tuning, be made great again if voters would honour a few charming centrist technocrats with political power. Piketty can indeed be seen to draw conclusions that do nothing but support this smarmy liberal wisdom. Such ideology flies in the face of the real histories of racism, imperialism, gendered oppression, and class prejudice. These are the time-honoured methods by which societies based on competition have consistently proven their inability to offer the world anything like meritocracy.

It is on these grounds that socialists have found it possible to say that Piketty is simply wrong. On the more basic question of inequality’s existence and increasing intensity, the left has granted that Piketty is right, but wrong in being right; that is, wrong for having stated the obvious. For many, Piketty is simply seen as boring.

This is unfortunate. Piketty’s massive study arms socialism with something much more powerful than yet more statistical proof of class domination’s tightening grip. It also gives us an ironclad empirical justification for claiming that capitalism, on the most profound level, is impermanent, contradictory, and flawed. What the left has to offer a beleaguered world on this matter goes far beyond the simple condemnation of inequality. If socialists learn can anything from his work, it should be that inequality under capitalism is a structural inevitability. Its rising intensity is baked into the long-term development of the market economy, and this dooms capitalist relations in the long run. And the long run is increasingly becoming our short run. The only question is of what comes after capitalism.

The grounds for making such these claims are prominent in the very first chapters of Piketty’s work. These are the chapters most reviewers bothered to read. But despite their prominence in the text, the significance of these arguments was lost. Furious debate about the mere existence or non-existence of Gilded Age-style inequality overwhelmed every other conversation which might have begun. Such a debate was made inevitable by the obstinate refusal of many commentators to recognise that capitalism could possibly create inequality, rather than serve to diminish it. But now that this absurd row has subsided, it has become possible and necessary to revisit Piketty’s work and examine the most damning conclusion one can reach by reading it: that capitalism has a tendency towards long-term decline. This has become clearer than ever in the relentless decade since 2008.

II.

It’s well-known that economic conditions in the societies Piketty analyses have been in decline since the 1970s. What Piketty became famous for showing is that amid such a decline, it becomes all but impossible for societies to increase real equality. This validates what we know about capitalism. Under capitalist social relations, the working population can never gain directly at the expense of the propertied classes. The poor see their standard of living substantially increase, and levels of taxation on the wealthiest rise, only when the economy is growing in absolute terms. It is only under such conditions that the rich can accept a smaller economic share — of a larger pie. This is what we call a “consensus” between capital and labour. Such a consensus was briefly seen in the post-WWII period. But as soon as conditions change and growth stalls, as happened in the 1970s, the calculations made by economic and political actors change dramatically. Capital ultimately cannot make real sacrifices on behalf of labour. The poor are always the first and only ones called upon to give up life and comfort when it becomes impossible for everyone in society to benefit simultaneously. Social relations under declining growth conditions become zero-sum political competitions which, so far, the rich have been winning. Given that state expenditure of the kind that maintains welfare programs is based on public debt, which is to say, on the promise of returns to debt-holders on the basis of future economic growth, these dynamics doomed the old welfare state model of social democracy. A world of weak growth, Piketty shows, has been the norm for a generation and will remain so for the foreseeable future.

We see now how capitalist relations, pursued to their ultimate limit, throw up insuperable barriers which liberalism has in fact only ever been able to overcome in its dreams — that is, temporarily, in the restless sleep before each rude awakening.

In proving this, Piketty’s celebrated technical characterisations take centre stage. Those who followed the Pikettymania coverage will remember his unique deployment of the terms r and g. In his formula, r stands for the returns on capital and g stands for growth. By growth, we mean the overall economic growth of countries, usually measured in GDP. By “returns on capital”, what is meant is the profitability of investments made by capitalists. Piketty’s argument about inequality ultimately rests on his observation that, historically, r has grown much more quickly than g. The rich get richer faster than nations do. As long as this is the case, inequality will increase and social order will be threatened. This is what we have seen, especially since the 1970s. This r > g formulation is thus where we have to begin unpacking the deep content of Piketty’s work.

Once we accept the logics of r and g, the frightening implications of inequality naturally emerge. But if one fails to linger with the actual text of Capital beyond this, and takes the question of its central contribution as answered, then one must draw the intuitive conclusion that what unequal societies need is simply more economic growth. r being greater than g may pose a problem that not everyone is ready to confront, but for those that are, the natural way out of Piketty’s dilemma is to increase g. Problem solved.

Except that “increasing economic growth” is hardly a new or revolutionary idea, and little any human being could possibly do to make policymakers obsess about this topic more intensely remains to be done. Growth is definitely one thing which the political mainstream has not left out of its consciousness and never has. If growth were as easy to generate as it were to talk about, this conversation would not be taking place. In all likelihood, no conversations would be — our planet would already be the charred, noxious husk drained of its resources it threatens to soon become. Therefore, justifying the need to expand economies is not Piketty’s contribution. Having established the implications of r > g, Piketty goes on to demonstrate the inherent limits capitalism sets for itself concerning future economic growth. This demonstration is at the heart of the true radicalism in Piketty. Hence his statement:

“ … growth has always been relatively slow except in exceptional periods or when catch-up is occuring. Furthermore, all signs are that growth … will be even slower in the future.” [72]

This, more than anything else, is why Capital is a profoundly alarming work, which people flocked to even if the reason to do so was not always well-explained. To understand how it could be the case that economic growth is a problem in itself, we have to understand how Piketty describes the dynamics which condition the values of r and g over time.

For Piketty as for most economists, r is determined by the relative riskiness of an investment; the more an investor, almost always a capitalist, stands to lose, the more they expect in return if their investment pays off. Meanwhile, g is conditioned in a grander, somewhat vaguer way by the co-evolution of two terms: “population growth and per capita output growth”. Increase in “output” is, for most economists including Piketty, expressed in terms of growth in productivity, which is conditioned largely by technological development. The advance of productive technology is a key component of what is called “total factor productivity”. Piketty makes the observation that,

“… growth always includes a purely demographic component and a purely economic component, and only the latter allows for an improvement in the standard of living.” [72]

This means that technological development is the component of growth which allows for a qualitative increase in the standard of living, rather than mere population expansion.

An increase in the standard of living corresponds to an increase in life expectancy. The lower rate of child mortality under modern conditions — better sanitation, advanced medical care, better nutrition due to higher incomes, etc — is synonymous with the massive population growth we have seen all over the world since the dawn of the Industrial Era. Such technological development has also created new industries for these new populations to participate in as workers. This allows wages and commodities to circulate in a way that expands the economic domain. Such expansion is essential in order for the mass of people called into being by population growth to access, through the market, the benefits of technology(more varied diets, medicine, etc), which in turn enables new rounds of growth. An increase in g is therefore a function of this technological-demographic feedback loop. New technologies allow populations to grow, and larger populations participating in economic life on an expanded scale create more opportunities for extended technological development. Such are the terms which condition g.

But the two factors r and g do not exist in perfect separation. One intervenes in the other. Everyone — from Marx to the blandest of mainstream economists — knows that the technological development which partially composes g is conditioned by investment in research and development; investment largely done by capitalists on the basis of expected returns. r thus intrudes on g in no small way. We can explore this by further exploring r.

From the spinning jenny to the steam engine to the microchip, commercial considerations have always been a part of technological innovation. It is on such a basis that capital justifies itself: it claims to risk its skin in the development of new technologies which, if conditions are right, create new markets, new job opportunities, and therefore new ground for the continued expansion of economies, populations and societies. Capital is in fact compelled to innovation, because any laxity in the battle to increase output on the part of an individual capitalist exposes him to destruction by competing capitalists who are not so idle. Hence the innate connections drawn by bourgeois economists between competition, capitalism, innovation, and growth. That these things naturally go together is simply an article of liberal faith. It is not wrong to say that such factors have co-incided historically, however much states may have been active participants in technological development. Growth is dependent to an extent on technology which is to an extent dependent on business concerns. Hence the inter-dependence of r and g.

But these heartwarming partnerships run into contradictions in the long run. Both of the terms which condition g are subject to deterioration over time, as is r. It has continually become more and more difficult to maintain the harmony of their inter-relationship. g requires the stimulation of investment, the reliability and intensity of which is conditioned by r, the rate of return on investment. But what we have seen since the 1970s is an environment in which opportunities for profitable investment have become increasingly scarce. Piketty maintains that for most of capitalism’s history the actual value of r, the rate of return on capital, has held steady at around 5 or 6 per cent, but more needs to be said here.

The fact is that capital investment across sectors has been on the decline for a very long time, and ongoing investment has had to turn to increasingly risky domains to extend profit. Scholars like Nick Srnicek have written about how the decline of investment opportunities in traditional industries is what lies behind the increasing focus on more volatile, experimental technology investments of the kind we see coming out of Silicon Valley.

If r has become more precarious for many capitalists, this has been because opportunities for anyone other than the largest, most powerful corporations to find competitive advantages in new forms of production have all but disappeared. This is the tendency that Stephen Kaufmann and Ingo Stützle identify in their introductory work on Piketty’s Capital as a “surplus of capital relative to possibilities for increasing productivity and hence returns on capital” [29]. Productivity is key here: economists routinely talk about investment as a way of increasing the “marginal productivity(or product) of capital”. There is little one can do to earn profit that does not involve increasing productivity. And opportunities to do this seem to have been drying up across sectors.

Provided you accept Piketty’s definitions of capital, this is a climate where a smaller group of people stands to get richer than ever while most people, including the less powerful capitalists, get poorer. Increasingly, only the largest firms and fortunes are able to pay the entry costs involved in participating in a more and more technologically advanced business envirionment. This is why, for instance, ten companies control most of the world’s food businesses. The average value of r may be holding steady, but only the average. Averages aside, fewer and fewer people are seeing r of any value other than 0. Profits, rather than uniformly rising or falling, are skyrocketing for a few and cratering for the rest. Across important sectors, for instance retail, buyouts and bankruptcies are rife. Corporate consolidation of this kind, which is in advanced stageseverywhere, comports precisely with Piketty’s arguments about the increasing aristocratisation of capital. A further consideration, however, needs to be kept in mind.

r has therefore been subject to stress — an increasingly difficult job of maintaining the “stable” 5 or 6 per cent Piketty celebrates. This has had dire implications for g. If it is true that opportunities to increase the marginal productivity of capital are becoming more scarce, it follows logically that in addition to old industries reaching the limits to which they can be made optimally efficient, new industries are not being called into being which can be made subject to profitable improvement either. Such a phenomena can be observed as economic fact.

III.

Over time, advanced economies have evolved in such a way as to reveal the limitations of technological innovation as a way to create new domains for capital accumulation and employment. New industries with labour requirements large enough to take in the ever-expanding supply of surplus workers have simply not materialised, despite the reckless promises made by and about the high-tech industry. Societies have simply not emerged from deindustrialisation in tact. Rather than usher in an entrepreneurial renaissance, deindustrialisation has led to the flourishing of low-paid, often precarious service-industry work. This economic sector is estimated to account for 80% of the UK economy. We will see what the implications of this are for equality and social stability. The trap-doors through which policy thinkers attempt to escape the crisis of capitalism — education, re-industrialisation, etc — each come with their own limitations.

It is often said that for the bootstrapping dreams of the knowledge economy to come true, for plucky startup cultures to flourish and the promise of social mobility to be fulfilled, “education” and “skills” are what is needed. In this narrative, the millions economically displaced by deindustrialisation simply have not been “reskilled” properly. But education-as-politics is a long-standing liberal panacea with historical results we can evaluate critically. Pushing entire generations of young people into higher education has not ushered in utopia. While there are millions who no doubt count themselves grateful for having been given the opportunity to expand their minds, it simply cannot be denied that the real economic effect of treating higher education as the solution to all problems has been to create millions of heavily indebted people with university degrees whose actual market value is marginal, similar to what a US high school degree was in the past. The figure of the PhD working at a coffee shop while their degree gathers dust is so well-known as to be comical. This has nothing to do with whether going to school is good or bad. Instead, it has to do with the actual needs of modern economies. We simply do not actually need as many computer engineers or data analysts as we have people with mouths to feed. The service industry has become the home of what would otherwise be an entirely surplus population, of the kind we see in mega-slums around the world.

But the service industry cannot support modern industrial society without the injection of huge amounts of consumer debt into the economy. Consumer debt levels have indeed been soaring since the end of WWII. This is necessary, because the service industry work is and will remain characterised by low wage levels which inhibit the growth of consumer economies based on service industry employment. This is because such work comes with inherently low skill requirements. The barrier to entry in the service job market will therefore always remain low. The potential supply of service-industry labour will always more or less match the size of the working-age population as a whole. No one is too educated to not have the option of resigning themselves to looking for service-industry work. This guarantees intense competition over jobs — many employers routinely receive hundreds of applications for a single position — which translates into severe difficulty in forming networks of trade union solidarity, which are the main mechanism by which wages are propped up: the so-called “union wage premium” cannot help but go down under such conditions. Only trade union activity could guarantee high service-industry wages, and it is just such activism which has become difficult in the present economy, bar a few non-service industry bright spots. And as automation in the service industry proceeds — and it is already wiping out the British high street — competition will become even more intense. (I have written more extensively on this subject elsewhere.)

In the second chapter of Capital, Piketty characterises the arc of global economic growth over time as “a bell curve with a very high peak” [99]. The very high average rate of growth in advanced western economies during the middle of the 20th century was an historical anomaly.

This poses a dilemma for capitalist reproduction. If 2008 taught us anything, it taught us that debt defies control. Long-term stability becomes an oxymoron when economic processes come to rely on debt. This is how the partisans for financial de-regulation frame their arguments: we need to de-regulate in order to facilitate more transactions, which everyone knows is the only way to keep the economy growing overall. And they are not wrong, where a consumer economy is concerned. This is especially true of debt in the housing market, where the 2008 crisis began. A massive expansion of housing debt was part and parcel of the post-war economic expansion.

But in order for capitalism to survive, it will need more than new forms of debt and new suckers to take them on. It needs real growth. But growth, historically, has been dependent on the creation of new markets via the development of new technologies. The invention of the automobile, for instance, brought into being a whole army of auto industry workers as well as countless ancillary forms of labour; highway motel operators, independent car mechanics, and so on. This was not debt-driven expansion, even if it co-incided with and fed into an era of expansion that did involve debt.

But in the 21st century, rather than a flowering of new industries, we have seen the expansion of an old one — services — and the intensification of automated technique across sectors. Increasingly, investors have had to focus their attempts to increase the marginal productivity of capital on making existing industries more efficient, rather than the creation of new ones. This qualitative deepening of technological modernity increasingly takes the place of technology’s quantitative broadening. Manufacturing is not a solution to the problems posed by automation: automation is precisely what took manufacturing off the table as a basis on which to build a society.

It is not just that new industries are not coming into being on the necessary scale: existing industries are simultaneously becoming more and more hostile to human labour as time goes on. Automation is proceeding in the service industry and continues to be extended in manufacturing. The tech sector, despite claiming to be a “pioneer” of new industries whenever convenient, much more often prefers to cast itself as a “disruptor” of old industries. And this title is earned. Far more of what Silicon Valley does is disruptive to existing industries than in any way constitutive of entirely new ones. Jeff Bezos, richest man on earth, obviously did not increase the number of shopfronts in the world: Amazon simply concentrated access to a world of consumer goods into one central interface. It has therefore become abundantly clear that the tech industry cannot save capitalism.

All this means one thing: technological growth and development does create new opportunities for expanding the labour market, but only up to a historical point. At a certain stage of development, what automation makes possible for businesses becomes greater than what human beings make possible. We reached this point some time in the latter half of the 20th century. Automation has without a doubt pushed millions of people out of work since the postwar era, and rather than turning them into highly-paid engineers, it forced them and their children into service-industry drudgery. The majority of today’s workers simply cannot earn enough to participate in the consumer economy on the scale necessary to guarantee economic growth without recourse to crippling student, household and consumer debt.

Piketty would have us linger on the problem of growth, and does tie it directly to the problem of technology having ceased to open up expansive new markets. He stops short of predicting what technological innovations have yet to take place, or of what hypothetical new opportunities might be created for economic expansion. This is good form on his part, but deferring to uncertainty is the standard escape hatch through which liberal technocrats attempt to evade difficult conversations about growth. Rather than ask serious questions, we are meant, almost literally, to have faith in “human ingenuity”. The afflicted are constantly confronted with the dubious comfort of being promised that people put out of work by robots can get new jobs programming robots, as if the world needed precisely as many computer programmers as it needed computers. One wonders just how inefficient liberal technocrats think capitalism really is.

Despite playing cute on technology and growth, Piketty does make reference to the work of Northwestern University economist Robert Gordon, whose theory of growth rests on a conceptualisation in which waves of technological innovation correspond to waves of economic expansion. Gordon believes that, with the passing of an epoch where innovation created vast new industries and markets, growth in the advanced countries is destined to slow down. Piketty cheekily leaves it up to the reader to decide if he explicitly agrees with Gordon or not, but he does not contradict him, and on the subject of future growth prospects, Piketty references no other economist. Considering his references to Gordon follow clear statements that economic growth has likely plateaued, this name-check should tell us something.

If it seems like things can’t get more bleak, don’t worry: they can. The other term which conditions g, population growth, has also been subject to change. Population growth, which historically is correlated with economic growth, has stalled in the advanced economies for reasons that also have to do with the unfiolding of technological-economic possibilities. It is well-known that as societies pass from an agricultural model to an advanced industrial model, they undergo something called the “demographic transition”. This essentially means that as standards of living reach a certain point, birth rates go down. People have less desire to have children if infant mortality rates are low. This is what we have seen in all the high-GDP countries since the end of the Second World War. This means that the same number of people are being burdened with an ever-greater responsibility to maintain and expand consumption levels. Of course, Piketty stresses that population has not actually begun to contract in any country. We still have populations large enough for competition over scarce work to be a problem. The so-called problem of “overpopulation” need not concern us here — suffice to say that all societies eventually undergo their demographic transition, which poses long-term problems for capitaism. India and China are both in the process of undergoing their own transitions.

The pressure which the development of capitalism puts on r and g thus tends to explode their stable, mutually-beneficial relationship. Opportunities to increase r become scarcer and more risky as technology becomes more specialised and efficient. This same development of technology, which directly corresponds to the perfection of labour-saving technique, also destabilises labour markets and pushes a larger and larger surplus population into the ranks of precarious service-industry labour, where automation is continuing to evolve. The depressive effect all this has on wages then punishes growth, because growth in a consumer economy depends on consumer spending levels. We have been caught in this loop for generations now, moving forward largely under the power of consumer debt, a badly-trained beast which constantly threatens to turn around and bite us.

This is why Piketty can dedicate so much time to the subject of low growth rates and their political, social and economic implications. In the second chapter of Capital, Piketty characterises the arc of global economic growth over time as “a bell curve with a very high peak” [99]. The very high average rate of growth in advanced Western economies during the middle of the 20th century was an historical anomaly. Piketty claims it will level off at around one per cent in the near future, a return to something closer to its historic average, which was all but negligible until the Industrial Revolution.

The trend-bucking which dynamic Asian economies like India and China have been doing over the course of the last couple decades corresponds to what Piketty calls “catchup”. According to him, this is another form of anamolously quick growth, in which countries which lag behind developmentally begin to rapidly “converge” on the more advanced economies through a process which Piketty says is driven, first and foremost, by the diffusion of knowledge. It makes sense to claim that the diffusion of skills, education and technical know-how is the primary mechanism by which one economy catches up with another. Without these, all the fixed capital such as machinery and factories a country accumulates will be nothing but inert matter. And knowledge is more easily stolen than machinery. But even knowledge has its limits as a commodity, just like all other commodities. “Human capital” cannot save capitalism, despite what some people would have you believe. When economies catch up, they have caught up: as Piketty says, the world cannot play catch-up with itself. While he stresses that this process of global convergence on low growth levels is not complete, he does claim that the developing economies which are the focus of such attention and envy today will, tomorrow, suffer the same problems as all countries. He wrote this in 2014, already being able to read the signs coming out of Asia about slowed growth in the post-2008 period. Since the publication of Capital, the news has only gotten worse. China, often seen as the saviour of capitalism, has become one of its many victims.

This is the dynamic from which Piketty’s point about the increasing significance of inherited wealth as opposed to “earned” wealth proceeds. As economies contract, inheritence becomes a more effective way to accumulate wealth than innovation. We have seen that this phenomenon proceeds not on the basis of increased inequality, but on the basis of diminished opportunities to innovate effectively. Technology has, in many ways, done its job too well. The circuitous evolution of capitalism has re-created conditions similar to those which prevailed during the Gilded Age of the late 19th century. What many of Piketty’s readers — or those who claim to have read him — would have us believe is that this is somehow a betrayal of capitalism’s promise. Socialism must argue that it is in fact a fulfillment, and Piketty proves it, regardless of what he may have intended.

IV.

A puzzlingly backwards approach is often taken to Piketty’s r > g formula. The inequality which is a result of r being greater than g is often taken as a kind of cause for weak growth. In describing the social and political fallout of increased inequality as described by r > g, Finnish economist Heikki Patomaki writes:

There are two main reasons why these developments[increased inequality, concentration of political power] would increase the likelihood of major economic and political shocks. First, they strengthen the relative power of those actors who are predisposed to disregarding those rational economic policies needed to ensure full employment and steady economic developments. (53, PDF)

While it is certainly possible to see how inequality has a compounding effect on the contraction of g, leaving unexplained the fundamental dynamics that drive this process and failing to tell its history in detail leaves us vulnerable to a tautological form of thinking which essentially makes the claim that r is greater than g because g is less than r. This is supposed to be something politically profound. We are meant to believe that purely “rational” policies exist which could guarantee an increase in g, if only the pig-headed elites who are empowered by the rise in r relative to g were not increasingly in a position to block them.

This is a neat story, but a circular one. We have attempted to show how difficult the conundrum of growth, productivity and labour in the 21st century actually is to solve. Socialism will need to have a much broader imagination than is currently shown in those corners of left policy thinking that make industrial protectionism out to be some kind of salvation.

This lack of imagination is also on display wherever critics on the left have lost sight of what makes Piketty’s Capital truly significant. David Graeber, for instance, takes the argument that Piketty’s work ignores the role of political struggle played in shaping neoliberal capitalism to its logical conclusion by advancing the argument that a powerful anti-capitalist social movement is necessary to tame “savage capitalism”. In doing so, Graeber claims that Piketty’s work misses the essential driving force behind increased inequality: the lack of a global “alternative” to capitalism. This absence of resistance allows bourgeois rule to rampage across the world unchecked. This is an intuitive argument, and its flaws are easily able to hide behind its strengths. What Graeber fails to show — and what Piketty more than anyone allows us to see — is how this world-historic defeat of those forces pushing beyond capitalism in the 20th and early 21st centuries was actually accomplished. I have attempted to show here and elsewhere how an increase in labour market competition, made possible by new forms of automation, contributed to the dissolution of old bonds of labour union solidarity in key industries, and that this set the stage for the political defeats sufferred by 20th-century British socialism. Piketty’s work provides a framework for understanding the consequences of these historic shifts, and draws our attention to the relevant economic information in a way that Graeber’s simplistic rah-rah activist narratives do not.

Graeber, in his analysis of “bullshit jobs”, has done more than anyone to conflate industrial productivity of the kind that human labour steadily began to abandon in the postwar period with the “real” economy, as opposed to the false, bullshit economy of finance. Of our post-Fordist world, Graeber writes:

“If someone had designed a work regime perfectly suited to maintaining the power of finance capital, it’s hard to see how they could have done a better job. Real, productive workers are relentlessly squeezed and exploited.”

As if “real, productive” capitalism — industrial capitalism — were not guilty of its own monstrous absurdities. Burning the planet alive just so that rich countries can throw away half the food they import, or abandon to their closets half the clothes they purchase, amounts to bullshit no less odorous than what goes on in the City banks. The false profundity of the left’s common sense on “neoliberalism” is worth its own, long treatment.

Suffice to say that the growth regimes people like Graeber would seek to return to are gone forever, and Piketty proves this. This is despite his failure to live up to the radicalism of his book’s communist namesake. As Stephen Kaufmann and Ingo Stützle point out, on this subject Piketty’s Capital actually bears direct comparison with an argument advanced in Marx’s Capital — one which Piketty explicitly denies. They write:

“Against this background, Piketty is confronted with a similar ‘logical contradiction’ supposedly also identified by Marx with his theory of the tendency of the rate of profit to fall … “ [29]

This “tendency of the rate of profit to fall” has been debated and analysed endlessly. Very roughly speaking, it corresponds to the problem highlighted already by Kauffman and Stützle; the decreasing availability of opportunities to invest capital productively. But Piketty explicitly rejects this idea, maintaining that r — the rate of return on capital investments — has held steady more or less for all of capital’s history.

Make no mistake, Piketty did not set out to tell the story of capitalism’s irreversible decline. To this day, he takes every opportunity — even his most high-profile ones — to remind the French public that “reviving growth” should be the guiding star of their politics. Such claims rest on the assumption is that such a revival is possible, even if much of Piketty’s Capital works to show how unlikely this is even in the distant future.

Marxist economist Michael Roberts, who blogs at The Next Recession, has done some intriguing if not entirely blameless work in attempting to rehabilitate the orthodox Marxian view on the TRPF, against Piketty. He points out some interesting research done by scholars at China’s Tsinghua University(Li, Xiao, Zhu, 2009) and others that give some credence to the notion. But this need not concern us here.

One can make the argument that it is not necessarily changes to the average rate of return on capital which fundamentally determine the speed and severity with which inequality and instability grow. We have drawn attention to the tendency for such returns, whatever their average level, to accrue to a smaller and smaller strata of highly diversified, technologically advanced mega-corporations. Additionally, the practical social effects of inequality which Piketty would have us focus proceed more directly from an increase in the relative surplus population, the “reserve army of labour”. Marx describes the growth of this surplus population in its own terms, distinct from his treatment of the falling-profit tendency. The forces which act to broaden the surplus population are subsumed under a rubric which Marx refers to as the “general law of capitalist accumulation”. From Capital, Vol. 1, Ch. 25, Section 4:

“In the automatic factories, as in all the great workshops, where machinery enters as a factor, or where only the modern division of labour is carried out, large numbers of boys are employed up to the age of maturity. When this term is once reached, only a very small number continue to find employment in the same branches of industry, whilst the majority are regularly discharged. This majority forms an element of the floating surplus population, growing with the extension of those branches of industry … The same causes which develop the expansive power of capital, develop also the labour power at its disposal. The relative mass of the industrial reserve army increases therefore with the potential energy of wealth. But the greater this reserve army in proportion to the active labour army, the greater is the mass of a consolidated surplus population, whose misery is in inverse ratio to its torment of labour. The more extensive, finally, the lazarus layers of the working class, and the industrial reserve army, the greater is official pauperism. This is the absolute general law of capitalist accumulation.” [My emphasis]

This general law of accumulation, and the effects it has on the growth of the surplus population, has less in common with the TRPF than with the dynamics we have been describing, in which disruptive innovations de-stabilise traditional forms of work and introduce intense competition into a labour market characterised increasingly by service-industry labour. The Endnotes collective has written powerfully on the extent to which the tendency of the rate of profit to fall is really a centrally necessary concept in Marx’s work. In brief, we can say with them that that the TRPF may act as more of a supplemental concept to Marx’s broader contention about the long-term prospects of capitalist reproduction, rather than a central one. From Endnotes, Vol. 2:

“… if the theory of the tendency of the rate of profit to fall helps to highlight the extent to which labour is a problem for capital, Marx’s theory of the ‘general law of accumulation’ and of the constant generation of surplus populations, is both more revealing and more historically palpable in this respect.” [15]

The debate about whether Piketty proves or disproves Marx’s predictions about the historic trajectory of capitalist production essentially hinges on whether one considers Marx’s central contention about its slide towards breakdown to be the “general law” or the TRPF. Perhaps what Piketty shows is that both have a role to play, even if these are not connections or implications he explicitly pays attention to. We do know from publicly-available data that r, despite the degree to which it is holding steady on average, has come under strain as new opportunities to invest capital effectively have dried up. And we know with equal certainty that g, economic growth, is also under strain from the pressures of a surplus population increasingly marginalised from the consumer economy.

In conclusion, we should spend some time with Piketty’s often-overlooked “solution” to the crisis posed by r > g. He dedicates a great deal of space to this subject in the final third of the book. In brief, he proposes that the policymakers of the world come together to enact a “global tax on wealth”, in order to diminish inequality by paying for a new round of social welfare programs. This would amount to an almost magical act of multi-lateral governmental solidarity that seems, in the age of Trump, as if it could only occur on another planet.

The idea is simple. Piketty leaves the details indeterminate; they are not really relevant for his purposes. A global wealth tax would simply be a tax on the very rich, meant to pay for social programs, assessed by all nations acting in concert with each other. For Piketty, this is the only way to guarantee some approximation of equality and meritocracy. He would have us try to recreate the conditions of the mid-century welfare state, this time on a globally-coordinated level. Piketty calls this “a social state for the twenty-first century”. Why would such a scheme — and presumably such a state — have to be global?

One of the central arguments made by the hatchet-wielders of the neoliberal turn was that in order to attract business and investment to a particular nation or locality, capital needed to enjoy maximum freedom. As many regulations as possible must go, and public bodies entrusted with essential functions must be turned into profit-making private businesses. If such conditions are not created, then capital can be expected to take itself elsewhere, to somewhere with a “more favourable business climate”. It is on this basis that the world’s “innovation hubs” and “Special Economic Zones” were created. This is why any such wealth tax as Piketty proposes would have to be global. Capital can have nowhere to hide — only then can tax revenue grow to the size necessary to fix an utterly broken welfare state, or bring one into existence where none exists.

When it comes to the threat of business exodus, Piketty recognises what many on the left do not: that the logic of neoliberalism makes a perverse kind of sense. In a world where capital is global but workers are largely not, a world wherein people need to eke out a living based on what employment opportunities present themselves, capital really does have the power to set the terms of the social contract with reference to its extraterritoriality. Globalisation is real. Today more than ever, there can be no socialism in one country. No real way out of this dilemma currently exists. And Piketty’s global tax represents an abstract, lifeless attempt to cut the Gordian knot of globalised capital in the realm of theory.

In the global wealth tax scheme, we see technocratic 20th-century welfare state liberalism reach its logical conclusion. Now we have entered the inner chamber of the liberal heart. Here, even Piketty himself must dispense with all pretence: half-proudly he declares this ecstatic vision of a global revenue service “utopian”. With this one word, Piketty demolishes the intellectual high ground on liberalism which has always tried to perch itself by claiming a specious monopoly on “realism”, as opposed to the “utopianism” of socialism. This is what all the centuries of liberal thought from John Locke to John Meynard Keynes to John Rawls to today have apparently been building up to. Piketty has drawn back the curtain for the final time. We do not have space here to outline how unlikely it is in the current political climate that the nations of the world will be able to organise anything on a global, coordinated scale, other than perhaps a war. And Piketty knows this.

We see now how capitalist relations, pursued to their ultimate limit, throw up insuperable barriers which liberalism has in fact only ever been able to overcome in its dreams — that is, temporarily, in the restless sleep before each rude awakening. Piketty the cartographer has done more than anyone since Marx to map out the profoundly deluded realm in which liberalism lives. That he did so more or less without meaning to makes his achievement all the more impressive. Capital cannot grow out of its contradictions. From the moment it was born, it was marked, like all things historical, for eventual old age and death. This has profound implications for the socialist project, which today more than ever needs to distinguish itself from the half-measures dreamt up by liberals of all stripes — whether conservative or “progressive” — who hope to defer the hard choices involved in charting humanity’s future in an age of economic and ecological crisis.

What we have in Piketty’s Capital is a profoundly confused book, but confused in a way that should be familiar to all socialists. The liberal premises from which it begins are built on a bedrock of confusion. This, however, should in no way diminish the contribution it can make to a scientific socialist study of contemporary political economy. Ten years on from the financial crisis which crowned capitalism’s final run of unqualified growth(itself a part of a much longer postwar decline), we owe it to ourselves to take seriously all the empirical data that comes our way regarding socialism’s true historic tasks in the 21st century. It is beyond the scope of this essay to chart a precise route towards the fulfillment of those tasks, but we can say one thing with certainty: commodity production itself is the problem. This means that the competitive system of buying and selling that guides all forms of capitalism whether state-driven, co-operative or laissez-faire, must be treated as the starting point for our critique. In a world which has long since reduced “scarcity” to a cruel, ideologically-sustained absurdity, we can accept no more delays. Ten years since 2008 is already far too long.

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