Piketty makes an argument for John Lewis

JM Keynes’ General Theory was published seven years after the New York stock market crash of 1929. Thomas Piketty’s Capital in the Twenty-First Century was published six years after the financial crisis of 2008.

Paul Samuelson, later a Nobel Prize winning economist and 21 years old when the General Theory was published, said of Keynes’ great work that it ‘caught most economists under the age of 35 with the unexpected virulence of a disease first attacking and decimating an isolated tribe of South Sea islanders’.

Piketty’s impact has been equally dramatic and not just among those under 35. Princeton economist Paul Krugman has been gushing. Martin Wolf of the FT has reacted similarly on this side of the Atlantic.

Whether Piketty comes to have the lasting policy influence of Keynes remains to be seen. Keynes saved the capitalism of his day from itself. Piketty expects it to eats itself.

‘Wealth will concentrate,’ wrote Paul Mason in his summary of Piketty, ‘to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.’

While Keynesian demand management held throughout the post-war consensus that began with Attlee’s government in 1945 and ended with the arrival of Margaret Thatcher in Downing Street in 1979, Piketty calls his own solutions ‘utopian’.

On his wish list are a 15 per cent tax on capital, an 80 per cent tax on high incomes, enforced transparency for all bank transactions, and the overt use of inflation to redistribute wealth downwards.

The bleak future that Piketty anticipates follows from a simple conclusion:

‘The inequality r>g [the rate of return on capital is greater than the rate of economic growth] implies that wealth accumulated in the past grows more rapidly than output and wages.’

This is supposedly ‘the central contradiction of capitalism’, which Clive Crook has robustly challenged. For argument’s sake, though, let’s assume that Piketty is on to something: that capital grows more quickly than the rest of the economy, which drives destructive inequality.

There seems a simple solution, which doesn’t seem to me particularly utopian. This is that the return on capital is equalised. Piketty’s future sees workers, those whose incomes derive wholly from their labour, getting poorer, while the owners of capital get fat on the return to their assets. An alternative future is suggested by giving workers skin in the capital game. The capital of John Lewis, for example, is mutually owned by its workers. Their wealth grows as the return on these shares increases.

A Resolution Foundation event this week focused on a growing trend: the role that robots play in the economy. At the event, Alan Manning of the LSE posed a vital question: ‘who will own the robots?’ If robots are going to be both labour saving and displacing, we should be concerned not only with ensuring that workers have the skills to be productive but also with equalising the return on this robotic capital.

This idea is picked up in the second sexiest economics book (after Piketty) to have been published recently: The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, which looks at the growing role of intelligent machines.

Manning’s question drives us toward a similar conclusion to that which we might take from Piketty: the returns to capital, whether deriving from intelligent machines or otherwise, should be equalised, which mutualism would encourage.

While Keynesianism came to be characterised by elites pulling demand levers, widespread mutualisation would lead to more bottom-up institutions, which may be what capitalism now needs to be saved from itself.