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