With all the furore surrounding Thomas Piketty’s Capital in the 21st Century my aim here is to carry a weekly focus on the book . The purpose is modest. There is already in existence some rather excellent coverage and detailed engagement with the book both in the general media and on specific blog sites. I am thinking here of the analyses by Michael Roberts on his blog site; the competing viewpoint or ‘afterthoughts’ of David Harvey; Benjamin Kunkel’s assessment in ‘Paupers and Richlings’ for London Review of Books matched by Knox Peden’s great essay on ‘The Abstractions of History’; or Paul Krugman’s rather different tone in ‘Why We’re in a New Guilded Age’ for The New York Review of Books. My own endeavour is much less ambitious than any of these engagements. It seeks to offer a weekly equivalent to the ‘Pocket Piketty’ provided by Duncan Green. Each week my intention is to carry a blog post that summarises my notes on each chapter in just a few hundred words that can be read quickly. The purpose of these summaries is to produce an interpretative synopsis of each chapter drawn from my more detailed notes.
These interpretative digests will also enable me to formulate my engagement with a reading group on Piketty’s Capital in the 21st Century, organised by Chris Hesketh at Oxford Brookes University. They will also provide a quick précis for teaching purposes at the University of Sydney and through this novel pedagogical exercise conclude with a question each week to be developed in my Department of Political Economy classes on ‘The Political Economy of Global Capitalism’ (linked to the Twitter hashtag #ECOP2613). Such short interpretative digests may thus provide a different and original form of engagement with the book. Without attempting to rival or replace the importance of detailed engagement, these ‘Piketty digests’ will facilitate a quick and accessible read for people ‘on the go’. The posts will be formulated and produced after reading each chapter, in dialogue with the Oxford Brookes University reading group and colleagues at the University of Sydney, rather than polished after completing the reading of the whole book and then subsequently edited; although I may tidy up a little week-to-week. Perhaps these ‘Piketty digests’ will also provoke some wider resonances and points of contact. Here is the sixteenth ‘Piketty Digest’ on ‘A Global Tax on Capital’.
Chapter 15: A Global Tax on Capital
Here we are! With this chapter of Thomas Piketty’s book we are into his main policy focus: a pitch for a progressive global tax on capital coupled with greater international financial transparency — This refers to a progressive annual tax on individual wealth meaning the net value of assets each person controls: the tax would be based on individual net worth with such taxable wealth determined by the market value of all financial assets (including bank deposits, stocks, bonds, partnerships, and other forms of participation in listed and unlisted firms) and nonfinancial assets (especially real estate) net of debt — Greater financial transparency would lay the groundwork for a permanent annual tax on capital and pave the way for a more efficient management of banking crises — To cite Piketty directly:
The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises.
An o.1 percent tax on capital would be in the nature of a compulsory reporting law rather than a true tax, Piketty argues, so that ‘the capital tax would be a sort of cadastral financial survey of the entire world’ — Piketty notes that those states that have thrived on financial opacity may find it difficult to accept the reforms of transparency and a global tax on capital given that a legitimate financial services industry develops alongside illicit banking activities — But, as consistently laid out across these Piketty Digests, there is no analysis of the constituent factors contributing to crisis conditions within contemporary capitalism in the first instance and there is no focus in this chapter on the levels of financial transactions linked to the global drug trade, estimated in 2003 to generate over $300 billion per year — In recent years illicit banking activities linked to the global drug trade has included the laundering of $100 million of cartel funds, involved in the drugs war in Mexico, passing through exchange houses linked to Wachovia Bank now owned by Wells Fargo, with at least $378.3 billion of similar transactions processed and unmonitored between 2004 and 2007 — It also includes HSBC Bank laundering at least $7 billion from its Mexico operations into the banking sector in the United States, which was tied to drug traffickers — How are these transactions to be linked to a global tax on capital? — Nevertheless, Piketty’s insights on a capital tax are illuminatingly illustrated with reference to Liliane Bettencourt, the L’Oréal heiress who has a declared income at 5 million euros that is actually little more than one ten-thousandth of her real wealth, currently at more than 30 billion euros — The income declared for tax purposes in this case is less than a hundredth of the taxpayer’s economic income — Given that the rates of return on such wealth are also considerably large, between 6 to 7 percent, a progressive tax on capital is therefore needed in addition to income tax for those individuals whose taxable income is clearly too low in light of their wealth — Who could disagree with this conclusion? — Clearly a permanent annual capital tax on the Bettencourt empire would be socially just, because you’re worth it, Mme Bettencourt! — Given the controversies in France linking the 2007 election campaign of ex-president Nicolas Sarkozy to illegal donations from Bettencourt, captured in the set image to this blog post by Necdet Yılmaz, such issues go to the heart of party politics too — More structurally, then, a permanent annual tax on capital may be established at a rate that is fairly moderate: a wealth tax of 0.1 or 0.5 percent on fortunes below 1 million euros, 1 percent between 1 and 5 million euros, and 2 percent between 5 and 10 million euros, with rates as high as 5 or 10 percent for fortunes of several hundred million or several billion euros, could be possible in a European context based on the automatic sharing of bank information that would allow tax authorities to obtain reliable information about the net assets of tax payers — As Piketty states, ‘the degree of progressivity can be adjusted to match the evolution of returns to capital and the desired level of wealth concentration’ — A tax on capital would be designed explicitly for the globalised patrimonial capitalism of the twenty-first century:
A capital tax is the most appropriate response to the inequality r > g as well as to the inequality of returns to capital as a function of the size of the initial stake.
But what about redistribution beyond individual capital? — Across just one and a half pages, Piketty focuses on the redistribution of petroleum rents, mentioning the first Gulf War in 1991 and the Iraq War of 2003 — He notes that the unequal distribution of wealth in the Middle East has attained unprecedented levels of injustice that would have ceased without ‘foreign military protection’–a euphemism for the new imperialism — Piketty’s argument is quite opaque in this section, noting the inequities in the Middle East where annual oil revenues in Saudi Arabia are at $300 billion in a country with a population of 20 million, or $100 billion in Qatar with a population of 300,000, while countries such as Egypt have a total education budget at $5 billion for a population of 85 million — He then states, ‘Surely the international norm should be to prevent redistribution of wealth by force of arms insofar as it is possible to do so . . . But such a norm should carry with it the obligation to find other ways to achieve a more just distribution of petroleum rents, be it by way of sanctions, taxes, or foreign aid, in order to give countries without oil the opportunity to develop’ — This is hardly hoisting the interventions in Iraq on the petard of the illegality of war, notably in Iraq in 2013 — The complete neglect of wider debates about control over the ‘global oil spigot’ in Iraq, for example in David Harvey’s The New Imperialism is a striking absence and one possible implication to draw from Piketty is that the “redistribution of wealth by force of arms” should be avoided but, if it cannot, then illegal wars can carry out the work instead — That aside, the proposal in this chapter for a capital tax is seemingly much more robust than the rather flaccid conclusions in Costas Lapavitsas’ book Producing Without Profit that vaguely proposes public ownership of banking (as a form of public utility) alongside imposing a tax on financial transactions (in the form of the Tobin Tax) — Peculiarly, Thomas Piketty’s aim to regulate capitalism and to save it from future crises through the proposal of a global tax on capital is more radical than the Marxist proposal offered by Costas Lapavitsas of expanding public ownership in finance, although both would seem part of shaping a better world than today’s perpetuum mobile of profit making.
Question: To what extent are market regulating proposals to control finance part of anti-capitalist struggles for socialism?