Piketty’s “Capital,” and the Rest of the World

Video: Thomas Piketty Discusses, “Capital In The 21st Century” with Ryan Grim and Alexis Goldstein

The book by the French economist Thomas Piketty’s Capital in the Twenty-First Century has already become part of everyday discussions and is being referenced among academics. The research by Piketty has come in the perfect time and there are plenty of reasons why. Piketty’s book discussion brings some light to the study of income quintiles and deciles into a new debate of the “the skyrocketing incomes of the 1% — and the mind-boggling gains of the 0.1% and 0.01%  — by gathering and publishing income tax data that nobody had bothered with before. Piketty was behind similar projects in France, Britain, Japan, and other countries.” (via Justin Fox at the Harvard Business Review)

I finished reading the book this weekend and it was eye-opening. The book presents great challenges to the study of capital and inequalities in the developed economies as well as in the rest of the world. The book also opens the doors for a wider discussion on the effects European Capital has had in the global economy. Further, the book invites globalists to challenge our understanding of European-centric terms that over longer periods of time become, perhaps, insufficient to comprehend global economic processes over the passing of centuries and how these processes have changed and transformed themselves by a complex evolution and redefinition.

It can’t be denied that capital during all of the 19th Century and in the beginning of the 20th Century was centered in the main European metropolises and extracted most of the goods from the periphery. Few Capital remained in colonies and protectorates. Wealth belonged to the Empires and Poverty remained in colonial territories. Even the poorest of the European was considered Rich by comparison to the inhabitants of Colonies.

Today, European Empires are gone for a while, U.S. Capital increased and gained from the fall of the European Empires and new economies started developing in former Colonies. Giant Economies like China and Russia woke up after decades of isolation from global trade and today reconfigured our understanding of Capital. Piketty’s book somehow fails to explore this Global political changes and its economic effects.

Piketty’s central argument has a gigantic weakness since it is tied to nation-states and cannot be compared or understood in reference to Global Capital flows in today’s multinational economy. Very few references are made to the role played by Multinational Companies and foreign national investments and savings by State Companies in the world.  And less is mentioned of global inequalities and the North-South divide that has been increased by the investments done by Developed and Developing Economies in the rest of the world.  Piketty argues that Capital has tended over time to grow faster than the overall economy (he focuses on European and US economies); and that income from capital is invariably much less evenly distributed than labor income (again he focuses on European and US economies). Thus failing to acknowledge how Labor income stopped been localized during the 20th Century and it involved multiple polities far away from the metropolis.  Piketty argues that together (Capital growth and its uneven distribution) amount to a powerful force for increasing inequality.

Piketty doesn’t take things as far as Marx and this is a pitty. Marx’s methodology involved the State but it also referenced to its effects both and from the peripheries through the pass of longer periods of time. This is one of the most important contributions of Marx: his global understand of the economy.

Piketty shows how over the two-plus centuries for which good records exist, the only major decline in capital’s economic share and in economic inequality was the result of World Wars I and II, which destroyed lots of capital and brought much higher taxes in the U.S. and Europe. However, he again fails to acknowledge how Capital grew in the Global South after these wars as a result of increased inequalities in the Colonies and Agriculture-centered States in South America and Asia. During the wars Capital destruction was followed by a spectacular run of economic growth that involved the entire globe and not only Europe and the U.S.  The Cold War is a good reference for finding how Capital flows went from Europe to Asia, America and Africa.  As well, the run of economic growth started involving non-State actors in which Capital continue increasing at a higher and faster rate than the one he references and studies. Failing to study this shows in Piketty’s book that after decades of peace, slowing growth, and declining tax rates, capital and inequality are on the rise all over the developed world only, and it’s not clear what if anything will alter that trajectory in the decades to come.  However, the declining tax rates, capital and inequality are on the rise at a faster pace in the developing economies and in the “puppet states” (Nigeria, Chile, the Middle East countries) which have emerged around them as sources of petrol, minerals and rare earths.

Piketty’s main worry as points out Justin Fox is that “growing wealth in Europe will bring a return to 19th century circumstances in which most affluent people get that way through inheritance.” Plus, “U.S. median income will continue lossing ground relative to other nations in the following years”. But this are not the only worries that we should identify.  The BRICS countries are probably a good source of comparison to see how the growing wealth of the 20th Century remains on the hands of the few rich and is currently been passed through inheritance. Further, developing economies in South America and Africa are an extreme case of the last.

Piketty’s solution to Europe’s and U.S. problems is that a progressive global wealth tax be established. But this tax will fail to be the best response to the current dynamics of inequality if Capital continues flowing outside of Europe into multinational capital investments overseas and into State companies overseas. 

I enjoyed this political economy analysis and will continue learning a lot from it. Piketty’s solution is a challenge for the study of global political economy and the reconfiguration of the global economy in the 21st Century. Perhaps if a new book is published studying the shareholders who own the most stock in almost every Fortune 500 company and the Capital of any major global company instead of only the economies of France, Germany or the United States more accurate insights will be found.

 

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Video: Larry H. White talks about his upcoming book “The Clash of Economic Ideas”

 

Lawrence H. White is professor of economics at George Mason University and the F. A. Hayek Professor of Economic History in the department of economics at University of Missouri — St. Louis. His teaching and research areas include economic history, monetary theory, money and banking, and history of economic thought. White holds a PhD and a MA in economics from University of California at Los Angeles; he also received his AB in the same area from Harvard University. He is visiting professor at Universidad Francisco Marroquín.

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Finding the secret of the Prince of Persia in Weimar

Video: Placido Domingo interprets “Nessun Dorma” from Puccini’s opera Turandot

One of the most wonderful events that a human being could get to see in his lifetime is the opera Turandot. And for the first time in History, in October 14, 2011, the Middle Eastern citizens had the opportunity to attend to a presentation of Turandot at the Royal Opera House Muscaz; Oman‘s premier venue for musical arts and culture last  with a production by Spanish tenor Plácido Domingo1

The decision of choosing Turandot was also specially significant to the history of such a wonderful region because the opera tells a story from the famous Persian collection of stories know as The Book of One Thousand and One Days in which the character of the princess of “Turandokht” was found.This princess was to marry the prince who would solve her three riddles; failing was to result in the death penalty.  First, The Prince of Persia tried to win Turandot, and failing he was going to be executed. in his way to Death he gets to meet Princess Turandot and falls profoundly in love who manages to free himself and make evident his intentions to take Turandot’s challenge. He wins her challenge by answering her riddle but Turandot doesn’t wants to marry him.  In exchange, the prince says to the princess that he doesn’t wants to force the prince to marry him; and that, if she guesses his name before sunrise, he will let her kill him.

In this part, the opera takes you to the most wonderful scenes on Earth while Turandot is trying to guess the Prince’s first name. The Prince manages to kiss princess Turandot she realizes that she also loves The Persian Prince. In an emotional act he tells her his first name is Calaf waiting for her to love him more; however, she is full of anger and arrogance and thinks that he had just revealed the secret she so eagerly looked for. She goes to her father and addresses the Imperial Court; she reveals that the name of his lover is: love.

I remembered this story today while walking alone in the beautiful streets of Weimar seeking for an epiphany. I found it and cried in front of a copy of Auguste Rodin‘s sculpture L’âge d’airain (The Age of Bronze). And just as the Princess Turandot did, I found love today.

Auguste Rodin - The Age of Bronze

Recommended links:

Analysis and Background
Libretto, Discography, and Listenable Media

1 Check the list of all the performances of the Royal Opera House Muscat. Performances

Friday Book Review: “1493” by Charles C. Mann

Reviewed by Marek Kohn, Financial Times

“In hindsight, 1492 might have been a good point at which to reset the calendar. Traditionally, the year in which Columbus discovered America is seen as the moment Europe began to shape a New World. Today it looks more like the start of a process that has stitched the drifting continents back together: 1492 was the Year Zero of globalisation, and 1493 was Year One.”

Read More: “1493” – book review at FT.com