:00:00. > :00:18.benefit costs could send it over budget. Time for HARDtalk.
:00:19. > :00:21.Welcome to HARDtalk. Just occasionally, a big idea makes waves
:00:22. > :00:24.across the world and no`one knows that better than my guest today,
:00:25. > :00:31.Thomas Piketty. His book, Capital in the 21st Century, has become an
:00:32. > :00:35.unlikely international bestseller. His thesis carries echoes of Karl
:00:36. > :00:37.Marx. Modern capitalism, he believes, works in favour of
:00:38. > :00:44.entrenched wealth and exacerbates inequality. His research and
:00:45. > :01:06.conclusions have come under intense fire. Has he emerged unscathed?
:01:07. > :01:10.Thomas Piketty, welcome to HARDtalk. Let's start with the big idea and if
:01:11. > :01:16.I may, I will try to put it very crudely. Is it your contention that
:01:17. > :01:29.capitalism tends to make the rich richer? That's what capitalism does.
:01:30. > :01:33.Sometimes it makes the poor richer so there are different forces going
:01:34. > :01:36.on at the same time. Let me say, this is a book about the history of
:01:37. > :01:40.income and wealth distribution in over 20 countries over three
:01:41. > :01:42.centuries. There cannot be one single direction, one single force,
:01:43. > :01:51.that is pushing everything. There are different mechanisms and
:01:52. > :01:54.different forces pushing inequality. Speicifically inequality between
:01:55. > :01:56.countries. Sometimes this can also work within countries if we are
:01:57. > :01:59.sufficiently inclusive, all that I'm saying is that we have also other
:02:00. > :02:02.forces which can push in the direction of rising inequality and
:02:03. > :02:22.in particular, the tendency for the right to exceed the growth rate. You
:02:23. > :02:40.know, that can be a force. That's key to your idea. You have this
:02:41. > :02:43.simple formula that says that, for those with the accumulated wealth,
:02:44. > :02:46.the rate of return they can get on that wealth is by and large
:02:47. > :02:49.outstripping the normal growth rate in the economy and the rate of
:02:50. > :02:54.return that ordinary workers get from the fruits of their labour.
:02:55. > :02:56.Right. This is what we have seen throughout most of history of
:02:57. > :02:59.mankind, because the growth rate was very small. Before the industrial
:03:00. > :03:07.revolution, the growth rate was close to zero. The rate of return to
:03:08. > :03:16.capital... In order to get an annual income of ?1,000, you should have a
:03:17. > :03:20.capital of about ?20,000. 5% rate of return. It was so effusive you
:03:21. > :03:23.wouldn't even say it to our readers. Everybody knows this is the relation
:03:24. > :03:30.between the annual return and the capital value. Of course, at that
:03:31. > :03:42.time it was our view that R was bigger than G. The rate of return
:03:43. > :03:45.was bigger. The Industrial Revolution and modern growth, it has
:03:46. > :03:49.not changed the basic relationship as much as one might have expected.
:03:50. > :03:53.That's where people get surprised. If you think about the last 250
:03:54. > :03:55.years and the massive unimaginable changes we have seen across the
:03:56. > :03:57.developing world... You think of successive technological revolutions
:03:58. > :04:04.and also democratisation and the impact of politics. You can include
:04:05. > :04:12.the systems of the 18th and 17th centuries are long gone. The world
:04:13. > :04:26.has changed a lot. The world GDP growth rate over the past 300 years
:04:27. > :04:30.has been 1.6% per year. This is a lot of growth. When you create that
:04:31. > :04:39.over 300 years, it is enough to multiply the world population from
:04:40. > :04:45.600 million to seven billion today. And also to multiply per capita GDP
:04:46. > :04:50.and living standards. You are perfectly right, we are better off
:04:51. > :05:00.than we were three centuries ago. This growth process has transformed
:05:01. > :05:06.the world. But the growth is 1.6% on average in the long run. In order to
:05:07. > :05:10.get a growth rate of 4% or 5% per year, that would be in`line with the
:05:11. > :05:20.typical rate of return to capital, this is not a normal speed of
:05:21. > :05:23.growth. 4% or 5% is what you get when you are catching up with other
:05:24. > :05:27.countries, like in the postwar period. To catch up with the US and
:05:28. > :05:31.Japan. This is what you get with China today, which is growing even
:05:32. > :05:38.faster than 5%. I want to talk about China. Hang on, I just want to keep
:05:39. > :05:52.this as simple as we can because not all of us are economists. But it
:05:53. > :05:55.seems to me that you focus a lot on inequality and you focus on what has
:05:56. > :05:57.happened to the richest people in society, in industrialised
:05:58. > :06:00.societies, and your contingency is to be that, yes there have been some
:06:01. > :06:02.blips and shocks, many connected with wars or depressions. But in
:06:03. > :06:04.essence, throughout industrialisation, to the present
:06:05. > :06:08.day, capitalism's tendency is to maximise the returns for the richest
:06:09. > :06:11.10% of any given population. I would put it to you that the figures for
:06:12. > :06:16.the 20th century don't really back that up. Well, first of all, let me
:06:17. > :06:22.say that capitalism has produced a huge growth, huge improvement of
:06:23. > :06:40.living standards. I strongly believe in market forces. So you are
:06:41. > :06:42.pro`capitalism? Of course. Then banging on about inequality and the
:06:43. > :06:46.richest 10% getting richer is looking at the wrong part of what
:06:47. > :06:49.capitalism is all about? We need to look at both parts. Market forces
:06:50. > :07:01.and capitalism is good at producing innovation, producing new ways. But
:07:02. > :07:04.sometimes it knows no limit in the kind of extreme inequality
:07:05. > :07:06.generated. If we want to protect capitalism and globalisation, it is
:07:07. > :07:12.important to ensure that everybody benefits from globalisation. If a
:07:13. > :07:14.growing segment of our public opinion feels that a
:07:15. > :07:17.disproportionate share of the gains from globalisation goes to a small
:07:18. > :07:21.group of elite, there is a risk that many people will turn against this.
:07:22. > :07:24.For that to be credible, we have to be confident of your data. As you
:07:25. > :07:28.know, in the last month, there have been serious questions about the
:07:29. > :07:32.credibility of your data. Not least on the front of the Financial Times
:07:33. > :07:35.from journalist Chris Giles. I am just quoting some of his thoughts:
:07:36. > :07:40.Some of his numbers appear to be constructed out of thin air. He
:07:41. > :07:44.reckons that two of your big conclusions, that wealth inequality
:07:45. > :07:47.has been on the rise for the past 30 years in Europe and that the US has
:07:48. > :07:52.a significantly more unequal division of wealth than Europe. In
:07:53. > :07:56.his view, they no longer seem to hold, if you really look at the
:07:57. > :08:00.figures themselves. I think the FT has made a fool of itself. I'm very
:08:01. > :08:07.happy that the book is stimulating debate. That's what it's here for.
:08:08. > :08:11.In this case, I have responded to every point. Did you get numbers out
:08:12. > :08:18.of thin air? Did you tweak some of the data? Of course not. The FT has
:08:19. > :08:20.given my book a lot of publicity and has been damaging its own
:08:21. > :08:29.credibility. That's all they've been doing. Everybody in the world knows
:08:30. > :08:33.that top managerial compensation is a lot higher today than 20 years
:08:34. > :08:36.ago. Everybody knows if you look at wealth rankings, including in
:08:37. > :08:39.London, but all over the world, have been doing a lot better than
:08:40. > :08:45.average. But you can't say everybody knows. That is some serious academic
:08:46. > :08:49.research you're doing. When he says that, for example, for the last 30
:08:50. > :08:52.years of inequality in the UK, you have quoted figures that are not
:08:53. > :08:58.from the Office of National Statistics. And therefore are highly
:08:59. > :09:01.questionable. In the US, you have constructed a figure for the share
:09:02. > :09:04.of wealth owned by a percentage of the population because there were
:09:05. > :09:10.figures and you decided you are just going to extrapolate. That is
:09:11. > :09:14.completely wrong. If I was to rewrite the book today, I'd use more
:09:15. > :09:17.recent data from the US and I'd show an even higher rise in inequality.
:09:18. > :09:28.Regarding Britain, the FT people are using data and the top of this
:09:29. > :09:37.distribution is missing. If you exclude the top, you do not see
:09:38. > :09:44.inequality. You're saying the official data on the assets is not
:09:45. > :09:48.reliable? Not reliable at all. It is not that there are hiding, when you
:09:49. > :09:51.have a small sample of wealth, if you ask people to self report the
:09:52. > :09:57.income and wealth, it is already not so good for income. That is why it
:09:58. > :10:06.is important to use administrative tax data on returns and property,
:10:07. > :10:08.which is insufficient. It is also important to use data on wealth
:10:09. > :10:18.rankings. Look, we don't have sufficient transparency about income
:10:19. > :10:21.and wealth. At the end of the day, if we want to take something
:10:22. > :10:23.positive out of this controversy, I certainly agree that we need more
:10:24. > :10:29.transparency about wealth dynamics. This is a reason why it we need
:10:30. > :10:34.progressive stats. `` tax. It's a way to produce data. At least we can
:10:35. > :10:40.know better what is happening and can adjust our policy. Before we get
:10:41. > :10:48.to your prescriptions, a few more thoughts on the problem itself as
:10:49. > :10:51.you see it. Just one final thing about what you call a controversy
:10:52. > :10:56.with the Financial Times and the veracity of your figures... I just
:10:57. > :10:59.wonder how personal it has been. You are one of the world's leading
:11:00. > :11:02.economists and you have been accused of fiddling the numbers. Every
:11:03. > :11:06.possible media that has looked at this has concluded that the FT has
:11:07. > :11:11.been making a lot of noise out of nothing. It was just extra publicity
:11:12. > :11:19.to me. The FT probably feels that they have to defend it for the
:11:20. > :11:22.interest of their readers. Their readers also want credibility. They
:11:23. > :11:27.have been damaging their credibility a lot. Let's get to the philosophy
:11:28. > :11:33.underpinning your research. Why is inequality, in your view, such a
:11:34. > :11:49.problem? Inequality is not a problem per se. Inequality can actually, up
:11:50. > :11:52.to a point, be useful. It's a condition for innovation and growth.
:11:53. > :11:55.The problem is when inequality gets too extreme, then it becomes useless
:11:56. > :11:58.for growth and can even be damaging for growth because high inequality
:11:59. > :12:04.leads to a perpetration of inequality over time and a lack of
:12:05. > :12:09.mobility. How do we know where is the tipping point? That is very
:12:10. > :12:13.difficult. One of the lessons from my book is that this kind of extreme
:12:14. > :12:16.concentration of wealth that we had in the 19th century and up until
:12:17. > :12:19.World War I, it was not diminishing until World War I, it was not useful
:12:20. > :12:23.for growth. It was reduced dramatically by World War I and the
:12:24. > :12:25.depression and World War II and the public policies of the welfare
:12:26. > :12:34.state, free school, progressive taxation that were taking place
:12:35. > :12:44.after the war. These did not prevent growth from happening. The fact that
:12:45. > :12:47.the middle class owned a significant share is not bad for growth. It's
:12:48. > :12:53.good for democratic institutions and growth. Isn't the point that the
:12:54. > :12:56.real meaningful focus to judge capitalism's success or failure has
:12:57. > :12:59.to be on what is happening to the general living standard of
:13:00. > :13:10.ordinarily people? Of course. Then, frankly, capitalism has delivered
:13:11. > :13:14.and continues to deliver. And a lot of your critics, I will quote a
:13:15. > :13:17.couple of them to you, say that your analysis is driven by envy. A
:13:18. > :13:19.Canadian economic commentator said inequality is destabilising of
:13:20. > :13:24.itself, only if one accepts the overriding force of envy. That, in a
:13:25. > :13:35.way is what has driven your analysis. I don't think so. The
:13:36. > :13:44.problem is the success of the book is people will write about the book
:13:45. > :13:47.who have not even opened it. Chapter one and chapter two are about the
:13:48. > :13:50.huge improvement in living standards that modern growth and capitalism
:13:51. > :13:53.have brought to of us. Look, I believe in growth, I believe in
:13:54. > :13:56.market forces at a think that inequality is not a problem but when
:13:57. > :13:59.the top is rising three times faster than the average. Just take the
:14:00. > :14:22.falls rankings of billionaires. It is OK to have billionaires but...
:14:23. > :14:24.isn't. These are people who have become unimaginably rich not because
:14:25. > :14:32.of inherited wealth or accumulated capital but
:14:33. > :14:39.because of the benefit of their ideas. Let me try to finish my
:14:40. > :14:43.sentence. If you look at the ranking of the Forbes billionaires list over
:14:44. > :14:46.the past 15 years, what you see at the top is that the average wealth
:14:47. > :14:49.of the top group is rising three times faster than the average wage
:14:50. > :14:53.of the economy. Again, inequality is not a problem per se. But the top is
:14:54. > :14:56.rising three times faster than the average and at some point, this has
:14:57. > :14:59.to stop, otherwise you will have 100% of national wealth, meaning
:15:00. > :15:07.nothing is left for the middle`class. Nobody knows where
:15:08. > :15:11.this.. `` will end. But can you concede my point that the rich lists
:15:12. > :15:13.we see around the world are interesting because according to
:15:14. > :15:16.your theory, we should see the same names year after year, decade after
:15:17. > :15:19.decade, because they are enjoying the fruits of this high return on
:15:20. > :15:22.accumulated capital, but the truth is that we don't see that. We see
:15:23. > :15:25.new names because capitalism is dynamic and has fresh worlds and
:15:26. > :15:30.fresh economic ideas and those people who succeed do so through the
:15:31. > :15:34.power of their economic ideas. Right, but still, if they have the
:15:35. > :15:42.same wealth as the GDP of the entire world, you might at some point think
:15:43. > :15:45.this is too much. Even if you have mobility and new wealth, the point
:15:46. > :15:51.is that the top of the distribution cannot increase three times faster
:15:52. > :15:54.than the average wage. You say that natural forces alone in the
:15:55. > :15:57.capitalist system do not generate the optimum system, so you say that
:15:58. > :15:59.politicians and politics must intervene to, I think this is the
:16:00. > :16:08.phrase you used, challenge patrimonial capitalism. It seems
:16:09. > :16:12.that in specific terms, what you want is an 80% tax rate for those
:16:13. > :16:14.earning over $500,000 per year and you want a global wealth tax,
:16:15. > :16:25.substantial annual tax on the cumulative wealth of individuals.
:16:26. > :16:27.Yes, so first of all, we need education. Investment in education
:16:28. > :16:31.and inclusive educational institutions. These are the policies
:16:32. > :16:45.we need in order to reduce inequality. Right now, the average
:16:46. > :16:50.income of the parents correspond... To the average income of the top 2%
:16:51. > :16:54.of the US distribution of income. This does not look like the kind of
:16:55. > :16:57.democratic ideal that we would like to have. Broad access to skills,
:16:58. > :16:59.broad access to higher education, is primary. When it comes to
:17:00. > :17:08.progressive taxation to income, we have to be very precise about the
:17:09. > :17:11.number. The question is, is it useful to pay managers $10 million
:17:12. > :17:15.rather than $1 million? Do you see the extra performance or the job
:17:16. > :17:18.creation? We have tried to get data from companies in North America and
:17:19. > :17:21.Japan, trying to see the performance of companies that pay their managers
:17:22. > :17:33.$10 million instead of $1 million, $50 million instead of $10 million.
:17:34. > :17:37.We don't see the extra performance. I wonder, you are a French
:17:38. > :17:39.economist. You have had a chance recently to assess whether Francois
:17:40. > :17:42.Hollande's economic programme, which was substantially built around the
:17:43. > :17:48.notion that the richest were going to pay up to 75% tax or something
:17:49. > :17:51.around that mark. You have had a chance to assess whether that
:17:52. > :18:00.prescription is successful. Do you think it is? It has not been applied
:18:01. > :18:04.yet. I don't see how you can assess anything. Look at what is happening
:18:05. > :18:08.in France. At the degree to which leading French... This is
:18:09. > :18:11.ridiculous. It has not been applied yet, so how can you ask? We have
:18:12. > :18:14.cross`country evidence. Again, if you look at a broad set of
:18:15. > :18:18.companies, comparing how much it pays a manager, if you believe that
:18:19. > :18:20.a company paying a manager $10 million instead of $1 million
:18:21. > :18:27.creates more jobs, please show me the evidence. Because when you do it
:18:28. > :18:30.at the micro level, comparing countries and drawing conclusions by
:18:31. > :18:33.comparing countries is difficult but if you compare companies, I can tell
:18:34. > :18:39.you that you don't see the extra performance. At what point do you
:18:40. > :18:42.think punitive tax rates would deter people from further investment,
:18:43. > :18:48.innovation, economic commitment? 90%? 95%? Are you saying that there
:18:49. > :18:55.is almost no limit to the top rate of tax to the richest people? The
:18:56. > :18:59.problem is that there is no limit to the income they are setting for
:19:00. > :19:05.themselves. We are in a boundless process. OK. Let me tell you that I
:19:06. > :19:07.understand it is very difficult to have a debate about money and
:19:08. > :19:13.taxation because people get very excited. What I am trying to put
:19:14. > :19:18.into this debate is historical evidence. So let me give you a piece
:19:19. > :19:23.of historical evidence. Between 1930 and 1980, the top income tax rate in
:19:24. > :19:28.the US was on average 82%. And this was for half a century. Apparently,
:19:29. > :19:32.American capitalism did not disappear. Why is it so? Because
:19:33. > :19:35.this was applied only to income above $1 million, $2 million, and if
:19:36. > :19:38.anything, the growth performance and productivity growth, innovation, was
:19:39. > :19:48.higher in the 1950s, 1960s and 1970s than it has been since the 1980s.
:19:49. > :19:54.Since the 1980s, you see rising inequality every year, except in
:19:55. > :19:56.growth statistics. If we have a huge growth performance with rising
:19:57. > :20:00.inequality, that would be fine with me, but if you look at the evidence,
:20:01. > :20:06.look at the historical evidence, you don't see that. I think that we need
:20:07. > :20:10.to have a pragmatic debate about this and I think that some people
:20:11. > :20:13.are not ready yet for this pragmatic debate, but, you know, we need to
:20:14. > :20:24.look at this whole body of historical evidence. We briefly
:20:25. > :20:32.mentioned China earlier. I want to get your thoughts on China today. We
:20:33. > :20:34.have seen extraordinary commitment to a brand of state`managed
:20:35. > :20:37.capitalism. It has alleviated poverty for hundreds of millions of
:20:38. > :20:40.Chinese people. It has also introduced new inequality in China.
:20:41. > :20:43.Do you regard it as something positive or do you look at
:20:44. > :20:49.inequality and see it as something negative and dangerous? First, it is
:20:50. > :20:52.something positive, of course. China getting out of poverty, and emerging
:20:53. > :20:58.countries catching up to rich countries and getting out of poverty
:20:59. > :21:03.is positive. I believe that globalisation is a positive game. We
:21:04. > :21:06.all have to benefit from this and adopt the right policies and make
:21:07. > :21:09.sure that even those who do feel they are losing can actually gain
:21:10. > :21:12.from this. In China, you have huge inequality problems and the way the
:21:13. > :21:15.Chinese government has been dealing with inequality and perhaps more
:21:16. > :21:26.extreme wealth concentration so far has been mostly on a case`by`case
:21:27. > :21:30.basis. So they tolerate extremely wealthy oligarchs up on to the point
:21:31. > :21:33.where they put in jail. It is a bit like in Russia. But they are
:21:34. > :21:36.starting to realise that this is not very efficient way to regulate the
:21:37. > :21:41.distribution and acquisition of wealth. I was in China a few months
:21:42. > :21:44.ago for a conference on wealth and equality and there is a serious
:21:45. > :21:47.political debate about introducing some form of property or wealth
:21:48. > :21:50.taxation in China right now because they realise that even as a single
:21:51. > :22:02.party system, taxation is a better way to regulate inequality than just
:22:03. > :22:05.a case`by`case solution. One final thought and it is rich in irony. You
:22:06. > :22:10.are a respected academic economist who has written a book that has
:22:11. > :22:13.taken off around the world. You have sold 500,000 copies, you have been
:22:14. > :22:16.invited to the White House and spoken with top politicians around
:22:17. > :22:21.the world. I dare say you have made a lot of money. Because your book is
:22:22. > :22:25.all about the way wealth works and the way capitalism works, I would
:22:26. > :22:32.like to know, as we end, what are you going to do with your new
:22:33. > :22:38.wealth? First, I think I should pay more tax than I should be paying. I
:22:39. > :22:43.pay a fair amount of tax but I'm ready to pay more. Will you invest
:22:44. > :22:46.it or hope to pass it on to your children? Do you want to be part of
:22:47. > :22:55.the cumulative wealth system that your book critiques? Not at all. I
:22:56. > :22:59.think you have misread my book. I love capital and wealth. I love it
:23:00. > :23:05.so much that I would like everybody to acquire wealth and capital that
:23:06. > :23:08.they can pass on to their children. My problem with wealth is that the
:23:09. > :23:17.bottom half of the population has very little of it. So as far as I am
:23:18. > :23:20.concerned, I have enough income and wealth and I belong to a privileged
:23:21. > :23:23.minority, but for the lowest part of the population, for 90% of the
:23:24. > :23:28.population, accessing wealth and good paying jobs is very difficult.
:23:29. > :23:31.All I'm trying to do is think of systems that will give them more
:23:32. > :23:59.opportunities. Thank you very much for being on HARDtalk. Thank you.
:24:00. > :24:00.I there. We have some decent weather just around the corner for this