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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Hayek’s Spontaneous Order Goes Global with Instagram

Instagram user diegotrial

Several months ago when I heard the news about Facebook paying $1 Billion for Instagram I thought ‘the world was going crazy’.  My first impression was to think that the ruling scale of values was mistaken.  That people was giving value to unimportant things while the rest of the world was still trying to manage to survive the day.  I couldn’t understand Why would a company pay such a huge amount of money for a software application for smartphones and iPhone that is only used for procrastination and doesn’t create any value for the world? Last week’s volcanic eruption of Fuego Volcano in Guatemala made me change my mind.

The entrepreneurs behind Instagram,  Kevin Systrom and Michel “Mike” Krieger, created an application that was not only user-friendly but that enabled users to share images from anywhere in the world immediately.  Such an application was created (maybe unintentionally) to become one of the fastest image reservoirs of instant news and global interconnection.  When Facebook bought this photo-sharing app and paid $1 Billion they had not only bought the access to an essential function in millions of smartphones around the world but also connected visually the planet as we had never seen before.  Last week’s event in Guatemala was the first time in my life when I could see through my phone in Denmark high quality images of events that were taking place in real-time more than 5,843 miles.  Indeed, Hayek’s ideas of how an spontaneous order works was going global!

“Spontaneous order is what happens when you leave people alone—when entrepreneurs… see the desires of people… and then provide for them. They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.” Leonard Reed

To say that the world is interconnected and interdependent means to say that we are able now able of bypassing normal newsbroadcasters around the world.  No longer will be that easy for anyone to control what  the world would see and what the world wouldn’t see (as critized when News corporations around the world have been used to show a biased reservoir of images and videos during the Gulf War, or in the war in Iraq to mention some examples).  Now, with access to photo-sharing applications such as Instagram the world not only has access to interconnection of real-time events but also has what Hayek explained as “a more efficient allocation of societal resources than any design could achieve.”  Instagram is one more societal tool that enables us to achieve the best of humanity if used for the right purposes.  Because of this reasons the founders of Instagram earned  that billion dollars and the world is wealthier today.

Earth in Detail. Fantastic high resolution photographies!

The Spanish blog “Pasa la vida” shared these wonderful pictures of Earth in high resolution (11500 x11500)  As mentioned by them, the pictures were taken by the satellite  Suomi NPP with the instrument Visible Infrared Imager Radiometer Suite (VIIRS).

Picture 1

Picture 2

by by NASA Goddard Photo and Video in Flickr.com

Fight internet censorship and IP address blockades

A security line outside Google’s Beijing office. (AP/Andy Wong)

Is Internet a neutral zone? Is it a network that runs freely in any place of the world? Or is it controlled and regulated by governments and companies?

Sadly, it is not a free space in which people is able of doing whatever they rationally please. Internet is to a large degree a networked controlled and its globalizing effects are constantly been limited by the regulations and institutions of the countries from which we access it.  Specially in countries that have had a long history of citizen’s censorship and IP address controls.  CPJ‘s list of these countries that have managed to control the most it’s citizens freedom is #1 Iran, #2 Belarus, #3 Cuba, #4 Ethiopia, #5 Burma, #6 China, #7 Tunisia under Ben Ali, #8 Egypt under Mubarak (still continues being so), #9 Syria and #10 Russia.

Also, as noted in Wikipedia in 2006, Reporters without Borders (Reporters sans frontières, RSF), a Paris-based international non-governmental organization that advocates freedom of the press, started publishing a list of “Enemies of the Internet”. The organization classifies a country as an enemy of the internet because “all of these countries mark themselves out not just for their capacity to censor news and information online but also for their almost systematic repression of Internet users.” In 2007 a second list of countries “Under Surveillance” (originally “Under Watch”) was added. Both lists are updated annually.

Enemies of the Internet:

Internet censorship by country

As mentioned by Danny O’Brien in CPJ, “The world’s worst online oppressors are using an array of tactics, some reflecting astonishing levels of sophistication, others reminiscent of old-school techniques. From China’s high-level malware attacks to Syria’s brute-force imprisonments, this may be only the dawn of online oppression.”

Now, the principle in discussion here is what can we do to act freely in the Web? First, there are some services that enable you to block the origin of your IP address (learn what an IP is at the end of the post) and to access many websites by hiding your country of origin; one private and free service is HMA! or How to Bypass Internet Censorship.  But the most important one’s are the following online agencies and organizations that are working to inform and educate internet users of their rights and obligations:

What is an IP address:

Every device connected to the public Internet is assigned a unique number known as an Internet Protocol (IP) address. IP addresses consist of four numbers separated by periods (also called a ‘dotted-quad’) and look something like 127.0.0.1.

Since these numbers are usually assigned to internet service providers within region-based blocks, an IP address can often be used to identify the region or country from which a computer is connecting to the Internet. An IP address can sometimes be used to show the user’s general location. vía: http://whatismyipaddress.com/

What is Capitalism?

Before defining what is Capitalism I have decided to provide you with five videos that explain the philosophical foundations of Capitalism as a social system. By listening to these videos, you’ll get a wonderfully elaborated explanation of What Capitalism is and of what it consists of.

Video – What Is Capitalism (1/5)

“Capitalism is the only social system based on the recognition of individual rights and, therefore, the only system that bans force from social relationships.”1

Published in 1966 this abstract from Ayn Rand‘s work on Capitalism explains in a clear and unequivocal way the true concept and definition of a system based on reason and in the recognition of the rights of free and responsible men.

Capitalism in the previous quote means a full, pure, uncontrolled, unregulated social system known as “Capitalism Laissez-faire“. It is a system that works as a set of interacting or interdependent moral, political and economical principles that are incorporated into legal systems, institutions and governments. This moral, economical and political principles are contingent to the identification that the members of the system do in order to understand the nature of man and are applied to the rational understanding of man’s psycho-epistemology (man’s mode of functioning in acquiring knowledge).

In human history there hasn’t yet existed a capitalist laissez-faire social system that fulfills the previous requirements; and only glimpses of its potentiality have been achieved through history. However, since the 15th Century “economies organizing themselves on capitalist lines have experienced greater economic dynamism: increasing productivity, increasing employment, and generating more rapid advances in economic wealth, living standards, and improved health of the population.”2  It is because of many of the principles of Capitalism Laissez-faire that Globalization and all the different forms of Capitalism have managed to benefit humanity and achieved our current conditions. Unfortunately, it has been because of the philosophical contradictions and irrational actions of man that also many adverse results have come into being from these mixed forms of capitalism and economic crisis, inequalities in the distribution of wealth and environmental degradation are still existing.

The Board of the Center for the Study of Capitalism at Wake Forest University explains what are some of these forms of Capitalism that currently exist and also explain which are some of its capitalist characteristics,

In the 21st century capitalism exists in several forms. These include 1) free market or market-led capitalism such as we are accustomed to in the U.S.; 2) corporatist or state-led capitalism where the government exerts significant guidance, leadership, and influence over the deployment of private capital (e.g. France, Japan in the 1980s); and 3) managed capitalism, in which worker groups and broad social welfare issues exert significant influence on private corporate behavior (e.g. Sweden, Germany).3 Whereas some evidence suggests that market-led capitalist economies experience greater economic dynamism and higher rates of per capita income growth than economies with other forms of capitalism,4 other evidence points to less volatility and fewer inequities in other forms of capitalism than in market-led economies.5

This blog was created to study how and when Capitalism and its philosophical principles played a role in Global History.  It is my goal to demonstrate with a narration of past events how the roots of Wealth enabled for the interconnection of the World and how we could learn from the past to build more rational and objective societies.

Sources:

1 Rand, Ayn. Capitalism: The Unknown Ideal. Signet; Fitst Signet Printing, 1967 edition (July 15, 1986)

2 About Capitalism. BB&T Center for The Study of Capitalism. http://capitalism.wfu.edu/about/capitalism/

3 D. Coates, 2000, Models of Capitalism, Blackwell: Malden MA.

4 R. L. Heilbroner & W. Milberg, 2006, The Making of Economic Society, Prentice-Hall: Upper Saddle River NJ; E. Phelps, 1999, “Lessons from the Corporatist Crisis in Some Asian Nations”, Journal of Policy Modeling, 21 (3), 331-339. E. Phelps, 2007, “The Economic Performance of Nations: Prosperity Depends on Dynamism, Dynamism on Institutions”, in E. Sheshinski, et al, ed., Entrepreneurship, Innovation, and the Growth Mechanism of Free Enterprise Economies, 342-356, Princeton University Press: Princeton NJ.

5 M. Walker & R. Thurow, 2009, “U.S., Europe are an Oceans Apart on Human Toll of Joblessness”, Wall Street Journal, May 7, A1.