How and by what laws is capital distributed? Why do some always remain poor, while others - regardless of anything - rich? The author of the popular book Capital in the 21st Century, Thomas Picketty, conducted his research and came to interesting conclusions. In his opinion, in 1914-1980 the gap between the layers of society was minimal.
Fundamental contradictions
Life in modern society is subject to its laws. One of them is equal rights, that is, from an economic point of view, the ability to ensure their well-being only at the expense of their own abilities and desires. But Thomas Piketty, a professor at the Paris School of Economics (Capital in the 21st Century — his best-selling book) argues that there is an increasing relationship between a person’s personal success and his family’s financial situation. Of course, this contradicts the concept of equal opportunities.
Having barely appeared, the book made a lot of noise, because the author posed a lot of questions in it regarding the correctness of the postulates of a market economy. He does not exclude the correctness of Karl Marx, who claimed the inevitable death of capitalism.
Myths and Reality
If in the XIX century it was not surprising to anyone that a small group of people “owns the world”, then in modern conditions this fact constantly raises debates and doubts. Countries such as the United States, based on the proclamation of equal rights for all citizens without exception, require serious explanations for the gap between rich and poor.
For a long time, economists have argued that overall economic growth brings prosperity to everyone. Many books (“Capital in the 21st Century” are an exception) tell that individual efforts and workaholism allow people to achieve unprecedented heights. And that society no longer rests on bonds and inherited property. However, even the most primitive observations suggest the opposite.
If during the nineteenth and twentieth centuries the ratio of private capital to national income remained approximately equal (regardless of structure — first land, then industrial assets, and finally now finances), then starting from the 70s of the XX century the first prevails. Over the past 50 years, this gap exceeds 600%, that is, national income is 6 times less than private capital.
Is there a reasonable and logical explanation for this? Of course. A high level of savings gives a decent rent; the level of economic growth is rather small, and the privatization of state assets makes it possible to further increase the size of private capital. On the territory of the former USSR, it was denationalization that allowed a small number of citizens to significantly enrich themselves.
Historical reference
Economic growth at all times has been below return on equity, says Thomas Picketty. Capital in the 21st century, based on inheritance received, only widens this gap. The fact is that by the beginning of the 20th century, 90% of the national wealth belonged to 10% of the people. The rest, regardless of their mental abilities and efforts, had no property. Consequently, there was nothing for them to earn.
The declaration of equality, permission to vote and other achievements of a democratic society have not changed the economic laws and the concentration of private capital in a "small group of people."
No matter how terrible it sounds, but it was precisely two world wars and the need for restoration that created an unprecedented situation when income from savings turned out to be lower than economic growth. In the period 1914-1950, wealth increased by only 1-1.5% per year. In addition, the introduction of progressive taxation has increased the growth rate of the economy. But capital in the 21st century is again becoming more significant than innovation and industrial development.
Middle class
It was in the postwar period that the so-called middle class appeared in Europe. Again, this was due to economic and political turmoil, and not due to equal opportunities. But the enthusiasm did not last long. By the 1970s, progressive specialists recorded a new growth in property inequality.
In his book Capital of the 21st Century, Thomas Picketty (a book has already been published in Russian) says that, despite the emergence of the middle class, the poorest people do not feel economic development. The gap between the layers of society is only growing.
However, starting in the 1980s, the scientist says, historical trends are returning. If in the mid-60s it was really possible to break up to the top of the economic pyramid due to one’s abilities, then by the end of the 20th century this path was closed. Thomas Piketty confirms all his arguments with figures. He gives an example of the salaries of senior and average employees. If top management increased their income by 8% per year, then all the rest - only by 0.5%.
Lucky
American economists attributed this inequity to remuneration to the special skills, experience, education, and performance of company executives. However, economic literature confirms that this is not the case. And even more, the salary level of the TOP manager does not depend on the quality of his decisions. Here the so-called phenomenon of “pay for luck” is observed: if, under the influence of external factors, the company develops dynamically, bonuses to employees automatically increase.
Inheritance or earnings
Capital in the XXI century for the first time in the history of mankind could be accumulated due to its mind and efforts. The author of the book deduced this postulate with the caveat that only people born between 1910 and 1960 had such an opportunity.
Realization of their talents allowed people to believe that inequality of origin (and, hence, economic welfare) is far in the past. However, modern research confirms the opposite: the size of inherited capital is significantly higher than that obtained during the redistribution of income from labor. In support of his words, the author provides statistics that include not only economic, but also demographic indicators.
The book “Capital in the 21st Century”, unfortunately, does not inspire optimism for those who seek to earn wealth on their own. The author studied the data for three centuries of the development of society and came to the conclusion that such economic inequality is the norm for humanity.