Sunday, June 22, 2014


Five minutes with Thomas Piketty: “We don’t need 19th century-style inequality to generate growth in the 21st century”

In an interview with EUROPP’s editor Stuart Brown and British Politics and Policy at LSE’s editor Joel Suss, Thomas Piketty discussesthe rise in income and wealth inequality outlined in his book, Capital in the Twenty-First Century, and what policies should be adopted to prevent us returning to the kind of extreme levels of inequality experienced in Europe prior to the First World War. Professor Piketty recently gave a lecture at the LSE, the video of which can be seen online here.

Your research has shown that inequality is rising and that without government action this trend is likely to continue. However, are we correct to assume that inequality is a fundamentally negative development in terms of its consequences on society?

There is no problem with inequality per se. In actual fact, up to a point inequality is fine and perhaps even useful with respect to innovation and growth. The problem is when inequality becomes so extreme that it no longer becomes useful for growth.When inequality reaches a certain point it often leads to the perpetuation of inequality over timeacross generations, as well as to a lack of mobility within society. 

Moreover, extreme inequality can be problematic for democratic
institutions because it has the potential to lead to extremely unequal
access to political power and the ability for citizens to make their
voice heard.

There is no mathematical formula that tells you the point at which
inequality becomes excessive. All we have is historical experience and all I have tried to do through my research is to put together a large body of historical experience from over twenty countries across two centuries. We can only take imperfect lessons from this work, but it’s the best that we have. One lesson, for instance, is that the kind of extreme concentration of wealth that we experienced in most European countries up until World War One was excessive in the sense that it was not useful for growth, and probably even reduced growth and mobility overall.

This situation was destroyed by World War One, the Great Depression, and World War Two, as well as by the welfare state and progressive taxation policies which came after these shocks. As a consequence, wealth concentration was much lower in the 1950s and 1960s than it was in 1910, but this did not prevent growth from happening. If anything, this probably contributed to the inclusion of new social groups into theeconomic process and therefore to higher growth. So one important historical lesson from the 20th century is that we don’t need 19th century-style inequality to generate growth in the 21st century, and we therefore don’t want to return to that level of inequality in Europe.

A video of Thomas Piketty’s recent LSE lecture is available here

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Note: This article gives the views of the interviewee, and not
the position of EUROPP – European Politics and Policy, nor of the London
School of Economics.

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